1. Confidential 111 The Financial Industry Business Ontology Explanatory Material Mike Bennett, EDM Council July 24 2012

2. Confidential Overview Definition of an ontology Overview of classification theory Transformation from a taxonomy to an ontology. The Financial Industry Business Ontology (FIBO) From business semantics to an operational ontology

3. Confidential 3 Copyright © 2010 EDM Council Inc. Data Governance A Bank is in essence an IT Company –Software manufacturing –Data production, consumption, –Information supply chain So how do we manage the business view of data? –Language interface business to IT –Conceptual model

4. Confidential Managing Semantics

5. Confidential 5 Copyright © 2010 EDM Council Inc. Conceptual Model for Data Conceptual Model (Semantics) Logical Model (Design) Physical Model (Implementation specific) Realise Implement

6. Confidential 6 Copyright © 2010 EDM Council Inc. Conceptual Model for Data Conceptual Model (Semantics) Logical Model (Design) Physical Model (Implementation specific) The Language Interface Business Technology FIBO bridges the “Language gap” between business and technology

7. Confidential 7 Copyright © 2010 EDM Council Inc. Development Lifecycle for Data Level (from Zachman)DataFunction 0Scope (contextual) Things relevant to the business Set of business processes 1Business Model (conceptual) Semantic ModelFunctional Requirements (Use Case) 2System Model (logical) Logical Data ModelLogical Design 3Technology Model (physical) Physical Data ModelPhysical Design 4Detailed RepresentationData definitionProgram

8. Confidential 8 Copyright © 2010 EDM Council Inc. Development Lifecycle for Data Level (from Zachman)DataFunction 0Scope (contextual) Things relevant to the business Set of business processes 1Business Model (conceptual) Semantic ModelFunctional Requirements (Use Case) 2System Model (logical) Logical Data ModelLogical Design 3Technology Model (physical) Physical Data ModelPhysical Design 4Detailed RepresentationData definitionProgram

9. Confidential 9 Copyright © 2010 EDM Council Inc. Conceptual Model Requirements Must be owned and validated by business –Manage the “Language interface” between tech and business subject matter experts –Everything should be in English No techie terms and casing like “objectProperty” –Everything should be reviewable Spreadsheets dialect-free diagrams

10. Confidential Industry Conclusions Good design is weak semantics Business knowledge gained during reviews is either –Lost –Buried in meeting minutes –Kept in uncontrolled spreadsheets in a variety of structures Data Dictionaries try to link business definitions to data elements –but data elements are reused across business meanings and usage contexts (good design again) Industry conclusion – “We need a semantics standard”

11. Confidential Ontology “A formal specification of a conceptualization” But –What formalization? –What conceptualization? –That defines what sort of ontology 11 Copyright © 2010 EDM Council Inc.

12. Confidential Some Terms Taxonomy –A structured classification scheme Linnaeus Taxonomy of Species Taxonomy of Financial Instruments Ontology –Adds formal properties to a taxonomy –Describes real world things Vocabulary or Lexicon –Deals with the words for things 12 Copyright © 2010 EDM Council Inc.

13. Confidential Overview of Classification Theory “Classification” –a system that employs a “meaningful clustering” of items Kwashnik (1999) –the “orderly and systematic arrangement” of items into a “system of mutually exclusive and nonoverlapping classes” Jacob (2004) There are various kinds of classification 13 Copyright © 2010 EDM Council Inc.

14. Confidential Classification – General View A Classification is a hierarchical structure This has two properties (Loehrlein 2012) –a hierarchical structure organizes categories on some sort of continuum. –could be "big to small," "general to specific," "powerful to not powerful," etc. –more categories occupy one end of the continuum than the other One such hierarchy is a type hierarchy –That is, a classification of some things, in some domain of discourse, from the general to the specific 14 Copyright © 2010 EDM Council Inc.

15. Confidential Classification Requirements Classification schemes may be –Monohierarchical –Polyhierarchical Polyhierarchical classification depends on multiple inheritance –one class may have several parents A whale is both a marine animal and a mammal An IR Swap is both a Swap Contract and an Interest Rate Derivative There is no one right way to classify 15 Copyright © 2010 EDM Council Inc.

16. Confidential Type Hierarchy Classification A given set of sub-classes of some class: –Should be divided according to one organizing principle –That is, one fact about the class of thing, which varies in a particular way –Put simply: one property which differs for each Classification facets may or may not be –Mutually exclusive: each set excludes the others –Completely exhaustive: all sub-classes between them cover the full membership of the superclass Realistically, one class of thing may be divided in many such ways 16 Copyright © 2010 EDM Council Inc.

17. Confidential Example Classification Scheme Types Non Hierarchical –Unstructured list of categories Things not connected by relationships –Pyramid structures Things connected systematically by a relationship that is not the generic relationship –Military hierarchy (a soldier is not a kind of general) –Geographic (Ontario is not a type of Canada) Strict hierarchy: a thing may only be under one category Polyhierarchy: supports multiple category membership 17 Copyright © 2010 EDM Council Inc.

18. Confidential Type Classification Hierarchies Precise inclusion sets v imprecise inclusion sets Well established species v ad hoc species Topic hierarchies –E.g. Dewey Decimal: French Grammar is not a kind of French, but a book on French Grammar is a kind of book on French Faceted schemes –Use multiple type hierarchies –May arrange this in different priority orders, for different purposes 18 Copyright © 2010 EDM Council Inc.

19. Confidential Taxonomy Taxonomy: –system that can be used to group, arrange, and describe items according to meaningful principles, and which provides users with an overview of the domain being organized Lambe (2009) A taxonomy uses a classification scheme to arrange the items in the domain of discourse A Taxonomy forms the basis for any ontology 19 Copyright © 2010 EDM Council Inc.

20. Confidential From Taxonomy to Ontology Ontology: the study of what is Ontologies (plural): the real world universe as it is referred to in a computer application –Informal: every application has an ontology, whether it’s documented or not –Formal: uses formal logic in some notation Semantic Web –Uses a formalism which can be reasoned over 20 Copyright © 2010 EDM Council Inc.

21. Confidential Model Theory and Semiotics For any model we may ask: –What is that to which the model elements correspond? –What is the formal grounding of the symbols in the model For an ontology: –The things to which the model elements refer are real things in the domain of discourse –The grounding is formal logic 21 Copyright © 2010 EDM Council Inc.

22. Confidential 23 June 2010 22 Possible classes of Thing

23. Confidential 23 June 2010 23 Example “Thing”: Equity Real world definition of Equity: "An equity is a financial instrument setting out a number of terms which define rights and benefits to the holder in relation to their holding a portion of the equity within the issuing company".

24. Confidential 23 June 2010 24 What is an Equity? Or to put it another way… Equity Equity security Instrument Terms Financial Instrument Is a kind of Has rights defined in In relation to

25. Confidential 23 June 2010 25 What is an Equity? Using OWL to define the classes of real things in the world, and the facts about those things Modeled in TopBraid Composer

26. Confidential 23 June 2010 26 Financial Semantics in OWL Pizza approach –“Everything is a Thing” What about common terms? –accounting terms for equity, debt, cashflow –Places, time concepts –Legal terms (securities are contracts) Better partitioning needed

27. Confidential The Semantic Web Web Ontology Language –Based on Subject-Verb-Object “Triples” –Widely used Protégé tool Experiment: Ingest a logical data model into OWL –Result: a logical data model in OWL Syntax is not semantics!

28. Confidential Making it Meaningful Putting something into RDF/OWL does not make it meaningful –Only you can do that So, what is a meaningful model –1. Formal relationship between model and subject matter: “Everything is a Thing” –2. Formal notation grounded in common logic –3. Abstraction of kinds of thing into their simplest possible building blocks Contracts, Parties, Legal Entities etc.

29. Confidential Making it Meaningful Formal Logic Semiotics – what to the model elements stand for –Ontological commitment Symbol grounding – what are the model elements in logical terms 29 Copyright © 2010 EDM Council Inc.

30. Confidential Formal Logic Ontology models rely on two logic constructs from formal logic –Universal Quantifier : “For all” –Existential Qualifier : “There exists” These make up the “First Order Logic” Allows you to define Things and Facts –Things: sets of which something may be a member –Facts: properties which intensionally define membership of that set –Can also describe sets extensionally 30 Copyright © 2010 EDM Council Inc.

31. Confidential Formal Logic Lets us assert the existence of things Lets us state, for given things, facts about them –These are properties –How it looks: You would not want to present these to business subject matter experts! 31 Copyright © 2010 EDM Council Inc.

32. Confidential Theory of Meaning – in English The model consists of: –Things A Thing is a set theory construct Arranged in a hierarchy called a “Taxonomy” –Like taxonomy of species –Facts Simple facts (names, dates etc.) –e.g. “Issue Date” is a date Relationship Facts (relate one thing to another thing) –e.g. “Share confers Voting Rights” –Things so referenced are also in taxonomic hierarchies –Other set theory concepts Disjoints, Unions

33. Confidential Theory of Meaning – in English Taxonomy: Like Taxonomy of Species –Animal v Plant –Vertebrate v invertebrate –Mammals, fish etc. Each thing is defined by what facts distinguish it For each new thing: –What sort of thing is it? –What facts distinguish it from other things? If it walks like a duck, swims like a duck and quacks like a duck, it belongs to the set of all things that are a duck

34. Confidential Applying Meaning to Financial Semantics Everything is a Thing –What kind of Thing? –What distinguishes it from other things? What kind of Thing? –Share is a Security is a Transferable Contract … is a Contract What properties? –Share gives the holder some Equity –Share confers on the holder some Voting Rights 34 Copyright © 2010 EDM Council Inc.

35. Confidential Where does this lead? Taxonomy of kinds of contract Taxonomy of kinds of Rights –Rights, Obligations are similar and reciprocal concepts –Note that these don’t necessarily correspond to data Semantics of accounting concepts –Equity, Debt in relation to assets, liabilities –Cashflows etc. Semantics of countries, math, legal etc. 35 Copyright © 2010 EDM Council Inc.

36. Confidential Global Terms Rationale: –Everything is a specialization of some more general term Legal, accounting, events, transaction semantics –Facts about instruments are stated in terms of other things Countries, formulae etc. Want to derive from and align with the best ontologies for these area Disposed under a common framework FIBO models are extensively partitioned Shared Semantics: –Align with standard ontologies where these exist –Leverage OMG standards e.g. Date Time Vocabulary Work with academia and standards (ongoing) –Transaction Semantics: REA, XBRL-GL

37. Confidential Financial Industry Business Ontology FIBO Industry Standards XLS Boxes & Lines User Commitments Original Content ISO 20022 FpML XBRL SemWeb OWL constructs ODM UML Tools MDDL Sub-set for readability Theory of meaning SME Reviews ODM v1.1 Archetypes RDF/OWL

38. Confidential What we wanted Business meanings In business language For business people

39. Confidential What we wanted Business meanings –Not data dictionary In business language –Not a design For business people –No funny symbols and things –No language to learn –Just the facts –Boxes and lines – something like this…

40. Confidential 40 Copyright © 2010 EDM Council Inc. Sample Screenshot Thing “Is A” relations Relationship Fact

41. Confidential 41 Copyright © 2010 EDM Council Inc. Example: Credit Default Swap (CDS)

42. Confidential 42 Copyright © 2010 EDM Council Inc. Spreadsheet

43. Confidential The EDM Council Semantics Repository Sample screenshot 2: Different types of Thing

44. Confidential So what is FIBO FIBO has these distinct aspects: –The Business Ontology –Presentation for Business Readability Released in discrete ontologies by subject area –FIBO for Business Entities is currently under submission –Securities, Loans, Derivatives to follow –Corporate Actions, Transactions later Leverage other OMG standards and shared semantics

45. Confidential From Business to Operational Ontology Uses for FIBO Semantic Technology applications Conceptual versus Operational Ontologies Transforming from one to the other Use of metadata 45 Copyright © 2010 EDM Council Inc.

46. Confidential 46 Copyright © 2010 EDM Council Inc. FIBO Uses FIBO Conventional Tech Semantic Web Repository Semantic Data Model Logical Data Model Physical Data Model MDR XLS Mapping Model Driven Development OWL Model Reasoners Linked Data Semantic Query

47. Confidential FIBO Uses As a common reference point –Mapping, integration –Replaces ad hoc spreadsheets with a formal project deliverable –Extend locally for concepts within the firm Model Driven Development –Position as “Business conceptual model” –Manage the “language interface” between Business and IT Semantic Technology applications –Implemented across conventional data stores –New application infrastructures (Triple stores)

48. Confidential FIBO Semantic Technology Applications Model one get one free –Full and formal representation of the business facts as a common language across the enterprise –Rendition of this in Semantic Web format (OWL) opens the way to semantic technology applications Formal reasoning across subject matter Automatic classification of product types Querying across subject matter Business Conceptual ontology (FIBO) transformed into “Operational Ontology”

49. Confidential Conceptual and Operational Ontology Conceptual Ontology –Includes concepts like rights, obligations Meaning is grounded in law –Does not care if it is decidable or how long it takes to reason over it Operational Ontology –Must conform with the stated technical constraints Reasoning Decidability –Combines ontology (classes) with “individuals” (instance data in triple store format) How to get from one to the other? 49 Copyright © 2010 EDM Council Inc.

50. Confidential How to get from one to the other Select a single classification facet Collapse the taxonomy above the domain Ignore terms which do not correspond to data –Rights and obligations –Policies, strategies, goals Identify those terms which correspond to instance data –For most rights and obligations, some data signature is likely to be present Use property chaining in the conceptual ontology to relate several more abstract but meaningful properties, with one concrete and data-focused property which can be processed. 50 Copyright © 2010 EDM Council Inc.

51. Confidential Ontology Metadata Standard metadata for definitions, notes, provenance etc. Additional metadata for mapping, regulatory cross reference etc. Available in OWL versions of FIBO –Annotation Properties: not reasoned over –Object Properties: seen by reasoner –Both are visible to semantic querying 51 Copyright © 2010 EDM Council Inc.

52. Confidential FIBO Roadmap (as at July 2012) Q3, 2012Q4, 2012Q1, 2013 FIBO-BE Business Entity FIBO-BE Business Entity FIBO Date Dependent Market Data Ontology FIBO Date Dependent Market Data Ontology FIBO LOANS FIBO Reference Data Securities FIBO Reference Data Securities FIBO Process Corporate Actions FIBO Process Corporate Actions FIBO Process Transactions FIBO Process Transactions FIBO Reference Data Derivatives Part 1 FIBO Reference Data Derivatives Part 1 FIBO Reference Data CIV/Funds FIBO Reference Data CIV/Funds Txn SME reviews Vote Finalization TF Vote Industry feedback Vote Funds BE Terms OMG DTV Alignment II Process notation MISMO Alignment Vote Q2, 2013 FIBO-BE Updates FIBO-BE Updates FIBO-Foundations Global Terms and modeling framework FIBO-Foundations Global Terms and modeling framework Vote FIBO-Foundations Updates FIBO-Foundations Updates JuneSeptDecMar Industry feedback Vote Industry feedback Finalization TF Operational Ontology Task Force FIBO Reference Data Updates FIBO Reference Data Updates DTV Alignment I Operational Ontology FIBO Reference Data Derivatives Part 2 FIBO Reference Data Derivatives Part 2 June Q3, 2013 Vote Industry feedback Finalization TF Operational Ontology

53. Confidential Deliverables 53 FIBO Basic Business Ontology (BBO) Adaptive: Web- accessible FIBO presentation FIBO OMG Specifications FIBO Foundations FIBO for Business Entities Etc. Operational Ontology (main business use case – common reference and querying across multiple data sources) Operationa l Ontology

54. Confidential Main Take-away Points An ontology extends a taxonomy which is organized according to some classification principles An ontology is not another sort of data model –It does not replace or displace messaging standards, database schemes or anything else –Common semantics is about the business view of what’s in data –Enables mature approach to technology management Putting it in a SemWeb tool doesn’t make it meaningful –You do Two ways to leverage FIBO –Common semantics –Semantic Technology applications Regulators and the industry are paying attention!

55. Confidential Contact Mike Bennett –mbennett@edmcouncil.org 55 Copyright © 2010 EDM Council Inc.