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Committee on Uniform Security Identification Procedure Number (CUSIP) Definition
This is a nine-character alphanumeric code used to identify a North American financial security for the clearance and settlement of trades. It was adopted under Accredited Standards X9.6 as an American National Standard. It is owned by the American Bankers Association and operated by S&P Global Market Intelligence.
The operating body which is known as CUSIP Global Services (CGS) is the National Numbering Agency (NNA) for the whole of North America, and CUSIP is the National Securities Identification Number (NSIN) used for the products from the US and Canada. CGS is used to assign all the NSIN in the US.
A Little More on CUSIP
The CUSIP system was developed by a committee formed in 1964 which later established the CUSIP Service Bureau in 1968 at the time of Wall Street paper crunch. This system has been growing over time to cover a wide range of securities, IPO’s, preferred stock as well as the listed options of US and Canada.
The database of CGS has issuer and issue-level identifiers together with standardized descriptive data for over 14 million financial instruments and entities. CGS is also responsible for assigning the ISIN in more than 35 markets as the designated national numbering agency.
Antitrust review
The European Commission charged S&P capital IQ back in November 2009 with abusing its position as the only provider of ISIN codes for US securities through requiring a licensing fee for their use from European financial firms and data vendors. This behavior was regarded as unfair pricing citing cases like clearing or regulatory compliance where there are no other alternatives.
The European Commission argued that other similar agencies around the world did not charge the fees at all or did so depending on the distribution costs and not usage. CGS/S&P capital IQ disagreed with the commission but offered to develop a low-cost, low-value feed or particular US ISINs to be used by the participants of the European Economic Area. Later, a formal agreement was reached.
Format
The CUSIP code contains nine characters and the first six are the base, and they uniquely identify the issuer. These issuer codes are alphabetically assigned from a series which includes intentionally built-in gaps for the possibility of future expansion. The 7th and 8th character are used to identify the exact issue while the 9th digit is a checksum that is automatically generated. Sometimes the last three characters are letters which provide room for expansion.
In each collection of 1,000 numbers, 990 to 999 and 99A to 99Z are for internal use. This allows a user to assign an issue number to any issuer relevant to his holdings but doesn’t qualify for coverage under the CUSIP numbering system. Other issuer numbers are reserved for the user for them to be assigned to non-security assets or to number the internal assets which are miscellaneous.
Although the 7th and 8th character represent the exact issue, the format largely depends on the type of security. The numbers represent equities, and the letters represent fixed income. In commercial papers, the first character is gotten from taking the letter code of the maturity month while the second is the day of maturity. Letters are used for numbers over 9.
The first security to be issued by any issuer is numbered as 10, and then subsequent issues are numbered through the addition of 10 to the last number used. This prevails up to 80 where the next issue is 88 which then goes down by tens. The issue number 01 is used in labeling every option on equity from that issuer.
Fixed income labels utilize a similar method, but they use letters instead of digits since there so many of them. The first issue is labeled AA, and then the next is A2 followed by 2A and A3. The letters I and O are omitted to prevent them from being mistaken as 1 and 0. However, CUSIP has some special characters used with private placement numbers in the insurance industry.
The 9th digit is generated automatically using the Modulus 10 Double Add Double technique which is based on the Luhn algorithm. It is calculated by multiplying every second digit by two. In the case of letters, they are converted to numbers by their ordinal position in the alphabet beginning with A=10.
References for Uniform Security Identification Procedure (CUSIP) number
- http://www.businessdictionary.com/definition/Committee-on-Uniform-Security-Identification-Procedure-CUSIP-number.html
- https://en.wikipedia.org/wiki/CUSIP
- https://en.wikipedia.org/wiki/CUSIP
Academic Research on Committee on Uniform Security Identification Procedure (CUSIP) number
- A Piece of Paper, Smith, R. B. (1969). Bus. Law., 25, 923. This is an article which elaborates on the importance of CUSIP in the identification of financial securities.
- The value of trading relations in turbulent times, Di Maggio, M., Kermani, A., & Song, Z. (2017). Journal of Financial Economics, 124(2), 266-284. This paper investigates how the trading relationships of dealers shape their trading behavior when it comes to the corporate bond market.
- Disclosure of equity holdings by institutional investment managers: An analysis of Section 13 (f) of the Securities Exchange Act of 1934, Lemke, T. P., & Lins, G. T. (1987). Bus. Law., 43, 93. This article majors on a required filing known as form 13F report, and it discusses its objectives and procedure of filing it.
- Measuring mutual fund performance with characteristicbased benchmarks, Daniel, K., Grinblatt, M., Titman, S., & Wermers, R. (1997). The Journal of finance, 52(3), 1035-1058. In this study, new measures of portfolio performance are developed and applied, and they use benchmarks which are based on the characteristics of stocks held by the evaluated portfolios.
- The R&D master file documentation, Hall, B. H., Cumminq, C., Laderman, E. S., & Mundy, J. (1988). This paper explains the panel of US manufacturing firms that are publicly traded. The panel was created and updated at the National Bureau of Economic Research between 1978 and 1988 within the Productivity Program.
- The behavior of stock prices around institutional trades, Chan, L. K., & Lakonishok, J. (1995). The Journal of Finance, 50(4), 1147-1174. This paper describes the price impact and cost of execution of a whole package of trades that is interpreted as an order by studying the total trades carried out by 37 investment management firms between July 1986 and December 1988.
- S&P Capital IQ, Phillips, C. H. (2012). Journal of Business & Finance Librarianship, 17(3), 279-286. This is a study of S&P Capital IQ platform which utilizes deep and extensive global financial intelligence together with a variety of tools for analysis, ideation and efficiency.
- Market discipline in the governance of US bank holding companies: Monitoring vs. influencing, Bliss, R. R., & Flannery, M. J. (2002). Review of Finance, 6(3), 361-396. This article searches for evidence showing that the price changes of the securities of US bank holding companies impact subsequent managerial actions.
- A troubled asset reverse auction, Ausubel, L., & Cramton, P. (2008). Mimeo. This paper brings forth a high-level design purposed for a troubled asset reverse auction and then explains the design issues of the auction while assuming some critical objectives of the auction.
- Of the Latest Attempted Revisions to the Bankruptcy Code: Can They Really Change Anything, Travis, V. W. (1999). Bankr. Dev. J., 16, 221. This article aims at discovering whether the lawmakers can succeed in revising the Bankruptcy Code and the areas that might be altered.
- Creating a linchpin for financial data: Toward a universal legal entity identifier, Bottega, J. A., & Powell, L. F. (2012). Journal of Economics and Business, 64(1), 105-115. This is a summary of the current environment of entity identification and the challenges faced in private and public sectors because lack of an industry-wide legal entity identifier (LEI).