Product identification

What Is a CUSIP Number?

A CUSIP number is a unique nine-character alphanumeric code that identifies North American financial securities for the purpose of facilitating the clearing and settlement of trades. As a critical component of securities identification, the CUSIP number acts like a serial number for a specific security, ensuring that all parties involved in a transaction are referring to the exact same instrument. This unique identifier is applied to a wide range of financial products, including stock, bond, mutual fund and exchange-traded fund issues. The consistent use of CUSIP numbers helps to streamline operations across financial markets, reducing errors and improving efficiency in trading and record-keeping.

History and Origin

The origins of the CUSIP system trace back to the mid-1960s, a period when Wall Street was grappling with a massive "paper crunch" due to surging trading volumes. The manual processes for clearing and settling trades, which relied heavily on physical stock certificates, led to significant backlogs and inefficiencies. In some instances, stock markets had to close early to allow back-office operations to catch up.¹²

To address this growing crisis, the New York Clearing House Association approached the American Bankers Association (ABA) in July 1964 to develop a standardized method for identifying securities. This led to the formation of the Committee on Uniform Security Identification Procedures (CUSIP), which ultimately devised the CUSIP system.¹¹ The first CUSIP directory was published in December 1968, and the CUSIP Service Bureau (now CUSIP Global Services) was established to administer the system.¹⁰ The adoption of CUSIP numbers marked a pivotal moment, providing a foundational baseline for identifying financial instruments and dramatically improving the efficiency of market operations.⁹

Key Takeaways

• A CUSIP number is a nine-character alphanumeric identifier for North American financial securities.
• It stands for the Committee on Uniform Security Identification Procedures and facilitates the clearing and settlement of trades.
• The system was developed in the 1960s to address operational inefficiencies in financial markets.
• CUSIP numbers are crucial for market transparency, risk management, and the efficient tracking of securities.

Formula and Calculation

A CUSIP number itself is not a calculated value but rather a unique code assigned to a security. However, its structure does include a "check digit" at the end, which is mathematically derived to ensure the validity of the number. This check digit helps in detecting errors during data entry or transmission. The calculation for the CUSIP check digit typically uses a modified Luhn algorithm.

The CUSIP number is composed of three parts:

• Base (Issuer) Number: The first six characters identify the issuer of the security (e.g., a company, municipality, or government agency). These can be alphanumeric.
• Issue Number: The seventh and eighth characters identify the specific type of asset or issue (e.g., a particular bond series, equity class). These are usually numeric.
• Check Digit: The ninth and final character is a single digit calculated from the preceding eight characters.

While the full algorithm is complex, its purpose is to validate the entire CUSIP string. If any digit is mistyped, the check digit calculation will likely result in a different value, indicating an error.

Interpreting the CUSIP Number

Interpreting a CUSIP number involves understanding its three core components, which collectively provide a precise identification of a financial instrument. The first six characters pinpoint the specific entity that issued the security, such as a corporation or government body. This issuer code allows for quick identification of the responsible party behind the debt or equity instrument.

The seventh and eighth characters differentiate between various securities issued by the same entity. For instance, an issuer might have multiple bond offerings or classes of stock, and these digits help distinguish one from another. The final digit, the check digit, serves as a verification tool to ensure the CUSIP number's accuracy. This structured format makes CUSIP numbers invaluable for market participants, enabling them to confidently identify and track millions of unique financial instruments across the exchange.

Hypothetical Example

Imagine an investor wants to buy shares of "Acme Corp." on a major exchange. To ensure they are purchasing the exact common stock of Acme Corp. and not, for example, its preferred shares or a bond issued by the company, a CUSIP number is used.

Let's assume Acme Corp. common stock has a CUSIP number: 00508Y102.

1. Issuer Identifier (00508Y): This six-character alphanumeric code uniquely identifies "Acme Corp." as the issuer. All securities issued by Acme Corp. would begin with this code.
2. Issue Identifier (10): These two digits specifically identify the common stock issue of Acme Corp. If Acme Corp. also had a bond issue, it might have an issue identifier like "20" (e.g., 00508Y207).
3. Check Digit (2): This final digit is the mathematical checksum. If a broker inputs "00508Y10" and then manually calculates the check digit to be "2", it confirms the accuracy of the preceding eight characters. If the calculation yielded a different number, it would flag an error, preventing a misdirected trade.

This CUSIP number ensures that when an investor's order is processed, the correct security is bought or sold, contributing to the integrity of their portfolio.

Practical Applications

CUSIP numbers are foundational to the operation of North American financial markets, serving numerous practical applications. They are indispensable for the efficient clearing and settlement of trades, ensuring that buyers and sellers accurately exchange the intended security and funds. This is particularly vital in the high-volume environment of modern trading.

Beyond trade processing, CUSIP numbers are widely used for various analytical and regulatory purposes. Investment managers rely on them to track their portfolio holdings, calculate market value, and perform due diligence on individual asset classes. Regulators, such as the Municipal Securities Rulemaking Board (MSRB), mandate the assignment of CUSIP numbers for new municipal security issues to enhance market transparency and facilitate oversight.⁷, ⁸ The U.S. Department of the Treasury also utilizes CUSIP numbers to identify its various marketable securities, including Treasury bills, notes, and bonds, making it easier for investors to track specific government debt offerings.⁶ These identifiers are critical for data aggregation, risk management, and ensuring the smooth functioning of global financial systems.⁵

Limitations and Criticisms

Despite their widespread adoption and utility, CUSIP numbers have faced certain limitations and criticisms, primarily concerning their proprietary nature and associated licensing fees. The CUSIP system is owned by the American Bankers Association (ABA) and operated by FactSet Research Systems Inc.⁴ This proprietary control means that financial institutions and data vendors often incur significant licensing fees to use and distribute CUSIP data.³

This fee structure has led to accusations of monopolistic practices, with some entities arguing that the cost of CUSIPs has been artificially inflated and that the system discourages competition from alternative identification services.² Lawsuits have been filed challenging these fees, alleging that the system's owners have actively worked to stifle lower-cost alternatives.¹ While CUSIPs are considered the standard for North American securities, the existence of other identification systems, such as the International Securities Identification Number (ISIN), highlights the potential for fragmentation and the desire for more open, globally interoperable standards in financial data. These criticisms underscore the ongoing tension between standardized identification and market competition.

CUSIP Number vs. ISIN

While both the CUSIP Number and the International Securities Identification Number (ISIN) serve to uniquely identify financial securities, they differ in their scope and structure.

The primary difference lies in their geographical coverage and hierarchical structure. A CUSIP number identifies a security within the North American market. An ISIN, on the other hand, is a global identifier that often incorporates a country's national security identification number (which could be a CUSIP for U.S. and Canadian issues) within its structure, prefixed by a two-letter country code. For example, a U.S. security with a CUSIP would have an ISIN that begins with "US" followed by its CUSIP, and then a final check digit. This makes the ISIN more suitable for international trading and cross-border transactions, while the CUSIP remains the dominant identifier for domestic North American markets.

FAQs

Why is a CUSIP number important?

A CUSIP number is important because it provides a unique and standardized way to identify financial security. This standardization is crucial for the efficient and accurate processing of trades, reducing errors in settlement, and ensuring that all market participants are referencing the same instrument. It's a foundational element for market infrastructure and regulatory oversight.

How do I find a CUSIP number for a security?

For investors, CUSIP numbers are often listed on financial statements, trade confirmations, or brokerage account statements for securities held. Online financial data providers, such as Bloomberg or Refinitiv terminals, also offer tools to look up CUSIP numbers. Public resources like TreasuryDirect provide CUSIPs for U.S. government securities.

Are all financial instruments assigned a CUSIP number?

CUSIP numbers are primarily assigned to publicly traded financial instruments in North America, including stocks, bonds, mutual funds, and exchange-traded funds. Private placements or very illiquid securities may not always have a CUSIP number, though they might have other identifiers.

Can a CUSIP number change?

A CUSIP number is designed to be a permanent identifier for a specific security issue. However, in rare instances, a CUSIP number might change due to a significant corporate action like a major merger, spin-off, or a fundamental restructuring of the security itself. These changes are infrequent and typically well-communicated by the issuer and CUSIP Global Services.