FIBO Semantics Initiative

David Newman Strategic Planning Manager, Vice President Enterprise Architecture, Wells Fargo Bank January 2012

"We can't solve problems by using the same kind of thinking we used when we created them." Albert Einstein

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Agenda
1) Mission of joint EDM Council/Object Management Group Semantics OTC 1) Mission of joint EDM Council/Object Management Group Semantics OTC Derivatives Proof of Concept Derivatives Proof of Concept 2) Business and Regulatory Drivers 2) Business and Regulatory Drivers 3) Briefing on Semantics as an Enabling Technology for Expressing and 3) Briefing on Semantics as an Enabling Technology for Expressing and Operationalizing Financial Data Standards Operationalizing Financial Data Standards 4) OTC Derivatives POC Demonstration 4) OTC Derivatives POC Demonstration 5) Discussion and Next Steps 5) Discussion and Next Steps

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Industry Team Collaborating on Semantics OTC Derivatives POC

Name
David Newman Mike Bennett Elisa Kendall Jim Rhyne Mike Atkin Anthony Coates David Gertler Marc Gratacos Andrew Jacobs Dave McComb Pete Rivett Martin Sexton Harsh Sharma Kevin Tyson Marcelle von Wendland
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Organization
Wells Fargo EDM Council Thematix Thematix EDM Council Londata Super Derivatives ISDA UBS Semantic Arts Adaptive London Market Systems Citi JP Morgan Chase Fincore

Role
Lead Core Team Core Team Core Team Stakeholder Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert
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Key Regulatory Requirements Influencing Semantics OTC POC

1) Define Uniform and Expressive Financial Data Standards 1) Define Uniform and Expressive Financial Data Standards
Ability to enable standardized terminology and uniform meaning of financial data for Ability to enable standardized terminology and uniform meaning of financial data for interoperability across messaging protocols and data sources for data rollups and aggregations interoperability across messaging protocols and data sources for data rollups and aggregations Ability to classify financial instruments into asset classes and taxonomies based upon the Ability to classify financial instruments into asset classes and taxonomies based upon the characteristics and attributes of the instrument itself, rather than relying on descriptive codes characteristics and attributes of the instrument itself, rather than relying on descriptive codes

2) Classify Financial Instruments into Asset Classes* 2) Classify Financial Instruments into Asset Classes*

3) Electronically Express Contractual Provisions** 3) Electronically Express Contractual Provisions**

Ability to encode concepts in machine readable form that describe key provisions specified in Ability to encode concepts in machine readable form that describe key provisions specified in contracts in order to identify levels of risk and exposures contracts in order to identify levels of risk and exposures Ability to link disparate information based upon explicit or implied relationships for risk analysis Ability to link disparate information based upon explicit or implied relationships for risk analysis and reporting, e.g. legal entity ownership hierarchies for counter-party risk assessment and reporting, e.g. legal entity ownership hierarchies for counter-party risk assessment Ability to define data standards, store and access data, flexibly refactor data schemas and change Ability to define data standards, store and access data, flexibly refactor data schemas and change assumptions without risk of incurring high IT costs and delays, evolve incrementally assumptions without risk of incurring high IT costs and delays, evolve incrementally

4) Link Disparate Information for Risk Analysis * 4) Link Disparate Information for Risk Analysis *

5) Meet Regulatory Requirements, Control IT Costs, Incrementally Deploy 5) Meet Regulatory Requirements, Control IT Costs, Incrementally Deploy

*Swap Data Recordkeeping and Reporting Requirements, CFTC, Dec 8, 2010 *Report on OTC Derivatives Data Reporting and Aggregation Requirements, the International Organization of Securities Commissioners (IOSCO), August 2011 **Joint Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives, SEC/CFTC, April 2011

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Semantics OTC Derivatives POC Mission

Mission Statement:
Demonstrate to the financial industry and the regulatory community how: utilizing semantic technology and the Financial Industry Business Ontology (FIBO) can be a prudent strategic investment to realize:
data standardization data integration data linkage data classification

using currently available data sources and messaging protocols

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Data challenges for entity and instrument identification, classification and relationships
How can we evolve from a state of data disorder to data order? Current State of Financial Data Limited data standards Data rationalization problems Data incongruity and fragmentation Opaque data silos limits integration Cryptic codes, programs, brittle data schemas and fixed taxonomies
Jackson Pollock Convergence

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How can we supplement our existing investments in data management to resolve these challenges and achieve these goals? 7

Target State of Financial Data Pervasive data standards Data precision, clarity, consistency Data alignment and linkage Data integration despite silos Flexible and intelligent data schemas and dynamic classifications

Semantic Web Technology Can Help Organizations Mature their Data Management Capabilities
The true value of an information management system is ultimately based upon the intelligence and expressive power of its data schema or model

Semantic web technology provides highly advanced data schemas (ontologies) and tools that can help organizations better define, link, integrate and classify their data
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Financial Industry Business Ontology (FIBO)

FIBO
Securities Business Entities Derivatives

Loans

Built in Actions

Corporate

Industry initiative to extend financial industry data standards using semantic web principles for heightened data expressivity, consistency, linkage and rollups Semantics is synergistic, complementary and additive to existing data standards and technology investments in data management!
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What is Semantic Technology?

A data management technology for the 21st century that provides: a layer of intelligence over disparate data structures that is used to precisely express the meanings, concepts, and relationships implied by the data in ways that both humans and machines can understand in order to maximize data organization, integration and classification

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Semantic Web Stack

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What are Semantic Data Schemas (Ontologies)?

Schemas based on a formal symbolic logic (Description Logics) that specifies a set of mathematically verifiable and repeatable logical patterns that are understood by machines and can be used to represent complex relations between entities in order to automatically describe real world concepts that are meaningful to humans
Semantic Schema (ontology)

Understands

Understands

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Semantic Technology Basics

Describes concepts in terms of:
Classes (Entities, Unary predicates) Relationships (Properties, Binary predicates) Individuals (instances)

Makes inferencing possible

A Reasoner infers new data relationships and classifications after applying semantically defined rules and logical patterns to instances of data
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Aligns linguistically with how we think and speak!

<<Class>> <<Property>> <<Class>> <<Class>> <<Property>> <<Class>>

Subject Predicate Subject Predicate Person Person

type subPropertyOf invers e employs

Object Object

workFor Company workFor Company

type

David

isEmployedBy Wells Fargo

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Semantic Intelligence Utilizes Underlying Machine Based Logical Patterns

Example: Transitive Relations Underlying Machine Based Logical Pattern (Axiom)
expresses Inference: A causes D

A causes B

B causes C

C causes D

Inference: Humans cause Forest Fires

Human Concept Use Cases : Ancestry, Dependency, Impact, Link Analysis

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Some Examples of Semantic Axioms that Allow Machines to Represent Human Concepts
A class (or property) is Subsumption a sub-set of another class (or property) Mother subClassOf Parent Marge type Mother -> Marge type Parent Person hasBirthMother Mother Lisa hasBirthMother Marge Person marriedTo Person Homer marriedTo Marge -> Marge marriedTo Homer Person hasAncestor Person Bart hasAncestor Homer and Homer hasAncestor Abraham -> Bart hasAncestor Abraham Person hasParent Person: Person hasSister FemalePerson -> Person hasAunt FemalePerson Bart hasParent Marge : Marge hasSister Selma -> Bart hasAunt Selma NuclearFamily equivalentClass = hasFather exactly 1 Father and hasMother exactly 1 Mother and hasChild some Child Simpsons type NuclearFamily -> hasFather Homer and hasMother Marge and hasChild (Bart, Lisa, Maggie)
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Functional Properties Symmetric Properties Transitive Properties Property Chains

Property can have only one unique value Property relation holds true in both directions of the relationship If A has a relation with B, and B has a relation with C, then A also has a relation with C Properties can be linked together to form a chain of meaningful relationships Describes new class by associating multiple classes, properties and values together

Restriction Classes
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Ontology Spectrum*
xp e ve si s re
Modal Logic First Order Logic Logical Theory Is Disjoint Subclass of Description Logic with transitivity DAML+OIL, OWL property UML

strong semantics

om Fr

ss e

to

re o

Conceptual Model
RDF/S XTM Extended ER

Is Subclass of Semantic Interoperability

Thesaurus
ER

Has Narrower Meaning Than Structural Interoperability

DB Schemas, XML Schema

Taxonomy
Relational Model, XML

Is Sub-Classification of Syntactic Interoperability

weak semantics
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*courtesy of Dr. Leo Obrst, The Mitre Corporation

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Semantics Offers Differentiating Value Compared to Conventional Technologies

Swap LegalEntity
Interest Rate Swap Contract SubClassOf Basis Swap Contract SubClassOf

SwapAssoc

Party

Vanilla Interest Rate Swap Contract Type Swap_100001234

Equivalent Class

Swap_Leg some Fixed_Interest_Rate and Swap_Leg some Variable_Interest_Rate

hasSwapStream SwapStream_2 Swap_Leg

Swapstream

SwapParty

hasSwapStream Type SwapStream_1

XML
Lingua franca of web service messaging payloads following W3C standards Used to tag data elements with standard labels that conform to a predefined schema Forms structured data hierarchies Document hierarchy can be queried While XML tags associate data to labels, the meaning of the labels is not inherently understood by the computer requiring custom program logic to process each label 1/30/2012

Relational
Dominant database implementation Highly mature software and tools Data is physically organized within tables and accessed by matching related columns in different tables that fulfill various conditions Knowledge within application logic Hard-wired and brittle schema/data Design, construction, access, mgt are labor, time, resource intensive

Semantics
Emerging form of knowledge representation offers highly intelligent form of data organization Conceptually describes the meaning of data and its relationships in a way that both people and computers can understand Supports classification, reasoning and agility Limited, but growing, set of software, tools Can supplement XML and relational database Can begin with knowledge representation and evolve towards operational implementations 16

Semantics Supplements Existing Data Standards: Descriptively and Operationally

XML Message XML Message
Operational

Provides data mapping, linkage and classification

Swap

Relational Data Base Relational Data Base Swap LegalEntity

LegalEntity

SwapAssoc SwapAssoc

Party

Party

Swapstream SwapParty Swapstream SwapParty

Rationalizes
Descriptive

Precisely describes data elements for better human understanding

Describes
Ontology
Interest Rate Swap Contract SubClassOf Basis Swap Contract

Describes
e r at g s

SubClassOf Swap_Leg some Equivalent Vanilla Fixed_Interest_Rate Class Interest Rate and Swap Swap_Leg some Contract Variable_Interest_Rate Type hasSwapStream Swap_100001234 hasSwapStream Type SwapStream_1 SwapStream_2 Swap_Leg

e Int

Provides data integration and advanced queries across disparate data sources
Operational

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Note: Run with Animation

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Semantic Technology: How is it beneficial?

Conventional Technology
Business Rules in Code New Physical Table for New Entity New Data Entity Data Schema Define

Challenges:
Knowledge encapsulated in opaque software Data organization tightly coupled with schema Multiple complex tables and data relationships Awareness of physical organization of data required Schemas enforce limited data integrity

Application Software
Access Update

Physical Database

Semantic Technology
Some Business Rules Migrated to Ontology Physical Format Unchanged after New Data Entity Added New Data Entity

-> High costs, longer TTM Improvements:

Standard vocabulary and knowledge representation Data organization decoupled from schema Inferencing creates new knowledge Consistent rules based on standard data elements ensured across domain All data is Web addressable

Physical Database
Access Update

Ontology / Semantic Schema

Define Some Business Rules Added to Ontology

Application Software

Schema
Inferred

Data

-> Lower costs, faster TTM

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Comparative Analysis
XML
Describes Concepts, Taxonomies, Rich Data Relationships Concepts Understandable to Both Humans and Machines Multiple Classifications and Categorizations of Data Logical consistency and constraint checking Reasoning and Inference Capabilities Ability to change schema/model with low impact/cost Potential to Deliver Faster TTM and Lower TCO Operational Scalability, Efficiency and Optimization Industry Adoption and Prevalence of Skilled Resources Maturity of Tools and Software Current Ease of Mastery of Technology and Skills
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Relational Semantics

Low

Medium

High

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Potential Benefits of using Semantic Technology

Evolve Global Data Standards, Enable Data Integration and Classification
Provides model and infrastructure to define the meaning of information in order to represent the semantics of data standards; as well as integrate, link and classify incongruent data

Reduce Complexity

Reduces reliance on arcane legacy data structures and cryptic codes by using more meaningful, natural language friendly constructs

Reduce Costs (People and Technology)

As understanding of data increases, costly data reconciliation efforts by analysts can be reduced Improved data federation and reduced data management costs can potentially be realized As regulatory/industry views and assumptions change, semantics allows data schemas to rapidly reflect change without incurring massive data and application program restructuring efforts Using logically consistent rules and semantic definitions, programs called reasoners can infer data to be classified into special business defined categories and relationships
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Improve Agility

Increase Functionality using Reasoning and Inferencing Capabilities

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Business and Operational Ontologies

Requirement #1: Define Uniform and Expressive Financial Data Standards

Business Ontology (AKA conceptual model)

Defines contract types

Defines Transaction types

Defines leg roles

Defines contract terms

Model from Sparx Systems Enterprise Architect

provides source for

Agreement
is a has party

Includes only those terms which have corresponding instance data

swaps

Operational Ontology (Semantic Web)

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IR Stream IR Stream Narrowed for Operational use

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has party

IR Swap

swaps

Anatomy of a Semantic Data Standard

Requirement #1: Define Uniform and Expressive Financial Data Standards

ODM Model

RDF Type

OWL versionInfo

Semantic Metadata Model

SKOS definition

SKOS SKOS altLabel altLabel RDFS seeAlso

DC source

RDF,RDFS, OWL: W3C Semantic languages DC: Dublin Core Metadata Elements SKOS: Simple Knowledge Organization System

Semantic Metadata
rdf:type skos:altLabel skos:definition LegalEntityIdentifier LEI A legal entity identifier (LEI) is a unique ID associated with a single corporate entity dc:source SIFMA (Securities Industry and Financial Markets Association) overview discussion of Legal Entity Identifier (http://www.sifma.org) owl:versionInfo Version 1.0.0 rdfs:seeAlso Office of Financial Research; Statement on Legal Entity Identification for Financial Contracts 1/30/2012

Community Access to Standards

Multiple access options over the web via the authoritative standards body Hyperlink to semantic web standard from documents Community participation and interaction Query access via formal semantics repository including links and synonymous terms for knowledge Improved governance Provenance and evolution recorded Model files for download in multiple tools

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Semantics can operationally classify undifferentiated Swaps and show relationships

Requirement #2: Classify Financial Instruments into Asset Classes
Classes are inferred using rules that query the content of the data
Vanilla_IR_Swap has_Swap_Legs some Variable_Interest_Terms and has_Swap_Legs some Fixed_Interest_Terms

Data is linked together via relationships called properties

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* Gruff 3.0 courtesy of Franz, Inc.

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Semantic Representation of Contractual Provisions for Risk Classification

Requirement #3: Electronically Express Contractual Provisions
Transaction Repository, et.al.
M Fp
ISDA Master Agreement Schedules Credit Support Annex Schedules
OTC Derivative Confirm

Events
Downgrade Counterparty Credit

Credit Rating Agency

FIBO Ontology Operational Ontology

Counterparties

Define Axioms
Identify Key Contractual Events

Reduce Value of Collateral

Default Events Termination Events Increase Collateral Transfer Payments

Market Reference Data

Infer Counterparty Exposures Classify Counterparties into Risk Categories for Analytics

Classify Contract Type

Identify Key Contractual Actions

Risk Analyst
*Report on OTC Derivatives Data Reporting and Aggregation Requirements, the International Organization of Securities Commissioners (IOSCO), August 2011 **Joint Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives, SEC/CFTC, April 2011

Note: OTC POC Phase 2 in process

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Semantics offers Advanced Query Capabilities

Requirement #4: Link Disparate Information for Risk Analysis
Transaction Repository Z Legal Entity ?entity Legal hasExa ct Transaction Repository X typeLegalNa Entity me ha ?legal Legal s ?entity hasExa Imm ct e a Name Entity typeLegd lNa iat me ha ?legal hasExactLega e sIm lN P ?entity me amearen ?legal Name t has Imm diate Name ?parent ed P Transaction Repository Y
type
iate are pa Par nt ent rty To Sw ap

r ty pa

Sw To ap

r ty pa

ap

Sw To

?parent ?parent ?swap ?swap ?swap

Risk Analyst

notional swap Amount AtRisk notional Notional Amount Amount AtRisk

?amount ?amount ?amount

type

type Vanilla Interest

Rate Swap

subClassOf
Interest Rate Swap

Query all Transaction Repositories to report on the sum total of aggregate exposure for all counterparties and their parents involved in all swaps associated with an interest rate swap taxonomy

Basis Swap

subClassOf

Data is queried using graph pattern matching techniques vs. relational joins
Queries can process inferred data and highly complex and abstract data structures Queries can federate across semantic endpoints (using SPARQL 1.1) Data can be aggregated and summarized (using SPARQL 1.1)
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Note: TBD in future phase of POC

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Semantics Offers Federation via Linked Data

Requirement #4: Link Disparate Information for Risk Analysis Semantically defined data that is Web addressable and inter-linked Transcends organizational boundaries and provides universal access to data wherever it resides internally within the network (and externally via Linked Open Data) Obtains data directly from its source (transparent to location, platform, schema, format) Can support access, queries and rollups across Swap Data Repositories
Linked OTC Data Cloud
Swap Data Repository Database Aggregated Linked Data Query

Swap Data Repository Database

Semantic Enterprise Information Integration (EII) Platform Ontologies

Lin Se ks t ma o t nt he ic W eb

Risk Analyst

Legal Entity Data Provider

Note: TBD in future phase of POC

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Semantic Usage Patterns can be Deployed Incrementally and in Tandem with Existing Technology Requirement #5: Meet Regulatory Requirements, Control IT Costs, Deploy Incrementally
Conceptual Ontology Operational Ontology

Business Semantics Conceptual Models

XML Relational Application

XML Semantic Application Relational Unstructured

Schema Data

Business Semantics Conceptual Models

Reference Ontologies

Primarily for Human consumption Conceptual, design-time, and non-operational Community engagement and update process when warranted Standard terminology, concepts and descriptions for reference, knowledge, data reconciliation, rationalization and governance Integrated ontologies, Upper ontologies for broader meaning
Operational Ontology Schema Inferred Data

Primarily for Machine consumption Ontologies narrowed for operational usage Supplements and operates in tandem with conventional technology Runtime access to knowledge, reference data, metadata Canonical domain models for mappings and interoperability Semantic graph pattern matching queries and automated reasoning
Operational Ontology Schema

Semantic Application Rules Engine

XML XML RDBMS Relational Unstructured Unstructured

Inferred Data

TBox TBox Inferred Inferred ABox ABox

Semantic Application Rules Engine

XML XML RDBMS Relational Unstructured Unstructured

Heterogeneous source data ingested, validated for inconsistencies, and transformed by Semantic Reasoner into domain ontology to fulfill mapping rules Source data inferred by Reasoner, using formal axioms or rules, into abstract classifications, new data relationships/linkages Semantic rules engine can be optionally accessed Query time reasoning can be optionally utilized

Inferencing and Classification of Source Data

Data Federation and Linked Open Data

Data semantically linked, integrated and accessed both internally and externally using RDF linked URIs which are Web addressable Federated query of semantic and non-semantic data stores using canonical semantic domain model for data interoperability and inferencing

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OTC POC Semantic Building Blocks and Methodology

OTC POC Operational Ontologies
1) Build conceptual ontology for Swaps in FIBO

Legal Entity Legal Entity FIBO Swap Bridge

5) Build bridging ontologies that tie together individual ontologies

4) Build operational ontology for Legal Entities

Upper Ontologies FIBO Model Knowledge

FIBO-FpML Swap Bridge

8) Invoke Reasoner to a. associate data in FpML Swap Ontology to FIBO Swap Ontology b. classify Swap Contracts into taxonomy levels according to their attributes

Legal Entity FpML Swap Bridge

LE Instances
7) Ingest Legal Entity data into Legal Entity Ontology

2) Build operational ontology for Swaps from FIBO 9) Perform queries to fulfill regulatory use cases and reports

FIBO FIBO Swap Swap

FpML FpML Swap Swap

3) Build operational ontology for Swaps from FpML 6) Ingest FpML Swap data into FpML Swap ontology

SPARQL Queries

Reasoning

FpML Instances
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OTC Derivatives Semantic POC Demonstration

Swap Ontology Classification and Reasoning Semantic Query

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Semantic Building Blocks for Financial Data Standards and Risk Management
Advanced Queries Reasoning and Inferencing Data and Knowledge Representation Financial Industry Business Ontology (FIBO) Data Rollups and Aggregation Data Federation Graph Pattern Matching Inferred Conclusions and Data Linkage Data Classification and Categorization Data Mapping and Integration Data Taxonomies Data Traceability Data Consistency Holistic Data Linkages and Bridges Expressivity Mortgages Securities Derivatives ... Semantic Descriptions of Financial Data, Concepts, Relationships and Rules Higher Level Concepts (Upper Ontologies) Financial Data Standards Systemic Risk Analysis Asset and Risk Categories Runtime Knowledge Transparency Implementation Ontologies Machine Facing
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Operational Descriptive

Trust

Human Facing

Conceptual Ontologies

Semantic Foundations for Financial Data Management

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Semantic Technology: Making the Investment in Semantic Technology

Is still early in its lifecycle; tools are relatively immature and language standards are still evolving, vendors are small Does require a learning curve to understand how the semantic reasoner thinks in order to best utilize the technology; which can take time and investment to develop Will not necessarily replace current object oriented and relational database technology in the foreseeable future; but can be used to better enable and enhance conventional technology Positions users that are adopters of its knowledge representation and reasoning capabilities to achieve valuable benefits not easily achievable using conventional technologies by themselves

Adoption can be an Evolutionary Process that may Lead to Strategic Value

By embracing semantic technology and FIBO as a basis for enhancing financial industry data standards we are making a strategic investment to improve our data management capabilities by using the tools of the 21st century
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Invitation to Financial Regulators, Market Authorities and the Financial Industry

Financial regulators to support and participate in a formal collaboration with financial industry participants and standards organizations such as ISDA, ISO, XBRL, FIX, MISMO, OMG, etc. to refine and implement FIBO as the standard financial instrument and entity ontology for regulatory reporting, business processing and risk analysis Financial regulators to act as catalysts in forming a public/private partnership to create best practice reference architectures for operational semantic implementations. Continued extension of the semantic proof-of-concept work to support the analytical requirements of regulators, market authorities and financial institutions OTC Derivatives (Contractual Provisions, Credit Default Swaps) Asset Backed Securities (Mortgage Backed Securities, Collateralized Debt Obligations)

FIBO

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