As the world of finance, and the securities industry in particular has progressed and evolved across the centuries, its need to adapt to shifting times, growing complexity, and improving technology becomes ever more crucial. One area where this need to progress is evident is in security identification. With trading volumes growing explosively over the years, there is a clear value for a standardized identification system to track the movement of securities. The CUSIP code is a manifestation of this idea and is essential to the entire clearing and settlement process in stock exchanges across North America. Knowing the significance of this is important to anyone who is looking to become active in these markets.
In this article, we help you uncover the CUSIP code and the entire system that functions through it. Understanding it would simplify a lot of the complex jargon that regularly circulates across the industry.
Understanding CUSIP Numbers
CUSIP stands for Committee on Uniform Security Identification Procedures, which is a system that ensures the identification and tracking of most securities trading in the North American jurisdiction.
The CUSIP code, thus, serves the crucial purpose of helping market participants locate precise securities amid a sea of them. The system itself belongs to the American Banker’s Association and is managed by S&P Global Market Intelligence.
Under the CUSIP umbrella, some of the securities that are tracked are US and Canadian registered stocks, commercial paper, as well as government and municipal bonds.
For securities in markets beyond the US and Canadian ambit, there is a similar international identification system at work, called the CUSIP International Numbering System, or CINS. Together both ensure reliable standardization across markets.
History Of CUSIP
In order to effectively answer the question, ‘What does CUSIP mean?’, it would be useful to take a step back and assess the origins of this identification system, which traces back to the 1960s.
Throughout the early 1960s, there was much talk about a numbering system for the booming securities industry. In particular, the idea was explored in depth by the Securities Industry Association (SIA) and the New York Clearing House Association.
The first major step came in 1964 when the Committee on Uniform Securities Identification Procedures (CUSIP) was formed and tasked with establishing an identification system to facilitate, trading, settlement, and clearing.
By 1967, a six-digit alphanumeric code was formulated and implemented across American stock exchanges. The nine-digit CUSIP code we know and use today had been introduced in 1974, as a further improvement.
Fast forward to the present, the CUSIP system has been refined substantially and has stood the test of time against some of the most serious economic shocks witnessed in the prior decades.
It is important to note that although the CUSIP system is specific to the United States and Canada, the International Securities Identification Number (ISIN) applies to the wider global securities industries, and serves the same function as CUSIP.
How CUSIPs Work
Now that we have addressed the question, ‘What is CUSIP and ISIN?’ we can move right on ahead, and jump into how these are known to work across markets and exchanges.
The CUSIP system ensures standardized identification and hence works accordingly to the benefit of the securities industry and all its stakeholders. The following steps help explain CUSIP functioning in a practical step:
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Application
Whenever a company or financial institute (such as a bank) issues a security in the market, it would have to apply for a CUSIP number. The application would be sent to the American Bankers Association (ABA).
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CUSIP Number Assignment
Upon completing a review, the ABA would assign the security a unique-nine digit CUSIP code.
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Notification
Once the security is entered into the CUSIP system, its unique identifier code will be notified to participants in the market, as well as brokers and financial institutions.
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Functioning
Following the completion of the application process, the CUSIP number would be used by the market for identification during trade, settlement, or clearing.
How To Locate The CUSIP Number For A Stock
CUSIP numbers for stocks are openly available on public records. It is easy to identify given that each stock has this unique nine-digit code that acts as an identifier.
The simplest way to locate a stock’s CUSIP number is to use a public stock database or a website. The following steps help outline how this can be done:
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Enter Website
Go to a digital public record that specializes in equity stocks, such as that of S&P Global Ratings.
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Search For The Stock
Locate the specific stock you are investigating by means of its ticker.
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Locate Details
Once the stock page opens up, scan through the listed details the page has displayed regarding the stock, on the ‘profile’ tab.
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Identify CUSIP Number
Normally, at the end of the page, or in a separate tab, the CUSIP number would clearly be mentioned to help users locate the unique nine-digit identifier on the stock.
How To Find A Security’s CUSIP Number
Normally, when an individual is holding a security on their portfolio, its trade ticker is sufficient of an identifier for it, based on which one can reliably carry out trade and investment decisions.
In certain cases, such as during tax filing, there may be the need to disclose securities by their CUSIP numbers. For this, one would need to find the unique code that is inherent to it.
These sources that indicate CUSIP numbers can easily be accessed through the investment statement account, the online brokerage account, the trade exchange itself, or an external financial data provider, such as Bloomberg.
How Do I Look Up A CUSIP Number?
The method through which one would go on to find the CUSIP number of a particular security would largely depend on the class of security in question. Every different security type would entail a different approach to this.
For instance, as elaborated upon in the previous section, a specialized stock website would be the ideal channel for one looking to locate the CUSIP code of a certain stock. In addition to this secondary source, the following are some useful channels for finding this:
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Brokerage Records
When a particular security is bought or sold through a broker, the brokerage platform would clearly points out the CUSIP number in its records.
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SEC Query Tool
The Security and Exchanges Commission (SEC) has a reliable database and query tool on its website that the general public can access and determine the CUSIP number of specific securities.
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EMMA System
In the case of municipal bonds, the Electronic Municipal Market Access (EMMA) system can be accessed, which is managed by the Municipal Securities Rulemaking Board (MSRB).
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Company Website
Companies often mention the CUSIP number of their stock on their websites, particularly in the investor relations or stock information section.
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Mutual Fund Prospectus
In the case of mutual funds, the CUSIP number is clearly stated in the prospectus of the fund.
How Do You Look Up A CUSIP Number Of A Bond?
Just as in the case of a stock, looking up the CUSIP number for a bond would entail following a different route. For a bond, the CUSIP number can be used to reveal additional information such as the coupon rate, credit rating, and maturity date.
Some ways to find out the CUSIP number on a bond are detailed below:
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Bond Certificate
The simplest and most direct way to determine the bond’s CUSIP number is by going through its bond certificate, which clearly mentions this information for identification purposes.
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Broker
In the case where the bond certificate cannot be accessed, the next bet would be to get in touch with the brokerage through which the bond was purchased. Brokers maintain detailed records of bond transfers along with CUSIP codes.
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Bond Pricing Services
Bond pricing services offer their clients a range of detailed and technical information about bonds circulating the markets. One facet of information relates to the identification and the respective CUSIP numbers of the bonds.
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Financial Data Providers
Just as in the case of stocks, financial data providers or websites are a great way to learn about a bond’s CUSIP number. These platforms list real-time databases of these securities, along with a general profile of information.
What Does A CUSIP Number Tell You?
The CUSIP system makes the tracking and identification of securities extremely efficient through a standardized procedure. The information it conveys is highly useful to a range of groups, including investors, financial institutions, and regulators.
Below are some of the primary details about securities that CUSIP numbers tell:
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Issuer
The first six digits or characters within the CUSIP number point out who the issuer of the security is. Every registered company, fund, or institution has a specific identification system that is initially specified.
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Type Of Security
The following two characters after the first six digits make clear which type of security the CUSIP number is referring to, for example, 10 would be an ordinary stock and 48 would be a negotiable CD.
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Check Digit
The final digit in the CUSIP number is a unique check digit that helps verify the code’s accuracy. It involves a mathematical function that inputs the first 8 characters of the code. Only the correct last digit would validate the entire sequence.
Examples Of CUSIP Numbers
Having explored the CUSIP system and the codes that accompany it in detail, we can now contextualize our understanding of the system by considering actual examples. The following are some real-world examples of CUSIP numbers:
- Company: Apple Inc.
Ticker: AAPL
CUSIP Number: 037833100
Type: Ordinary Stock - Company: Walmart Stores Inc.
Ticker: WMT
CUSIP Number: 931142103
Type: Ordinary Stock - Company: iShares U.S. Preferred Stock ETF
Ticker: PFF
CUSIP Number: 464288687
Type: Index ETF - Company: Cohen & Steers REIT & Preferred & Income Fund
Ticker: RNP
CUSIP Number: 19247X100
Type: Closed-End ETF
Conclusion
In this article, we have attempted to answer the question, ‘what is a CUSIP code?’, and how the CUSIP system has become an integral part of the global securities industry, providing a unique identifier for each security that facilitates trading, clearing, settlement, and reporting.
The world of finance, and specifically the securities industry is layered with complexity, which begs the need for a standardized and reliable identification system. The CUSIP code is a brilliant, and time-tested answer to this issue.
The CUSIP system has become so fundamental that imagining a financial structure without it seems implausible. From making identification and tracking efficient to ensuring regulatory compliance, the benefits of such an identification system are tremendous.
