A CUSIP number is the unique registration number given to every publicly traded equity share and bond in the United States and Canada. The CUSIP system is overseen by the Committee on Uniform Securities Identification Procedures.
Purpose of the CUSIP System
The CUSIP system was created by the American Bankers Association and Standard & Poors to facilitate the settlement and clearing process involved in securities trading. Every trade includes the CUSIP numbers for all securities involved, which allows for a constant awareness of the ownership of all stocks and bonds originating in the North American securities markets.
CUSIP Number Digits
Each security’s CUSIP number is a unique 9 digit alphanumeric code that describes the nature of the security. The first six digits identify the issuer of the security, the 7th and 8th digits signify the maturity date, if any, and the 9th digit is an automatically generated check digit.
Identifying a CUSIP Number
The CUSIP number for a security can be accessed through the Electronic Municipal Market Access (EMMA) system. Alternatively, most financial statements and transaction histories that contain securities will also list the CUSIP numbers for those securities.
CUSIP Numbers and the International Securities Identification Number System
The International Securities Identification Number (ISIN) system is an extension of the CUSIP number system that uses an additional three digits to further identify and describe a security. The first two digits are used to identify their country of origin, and then an additional randomly generated check digit is used at the end.
CUSIP Numbers and Trading
Traders who began their careers in the digital age have grown accustomed to expecting seamless and flawless securities clearing and transactions. However, this contemporary digital system overlays an older complex system of checks that are still prone to human failure, as well as computer errors.
Traders who make a large number of trades across a variety of different securities should periodically check their transaction histories for errors in securities clearing. These errors may be rare, but they do exist, and they can dramatically reduce a trader’s profitability.
Furthermore, an error in transaction clearing is rarely unique, and instead is usually a part of a larger systemic problem in software coding or clearing systems. Therefore, when there is an issue with transaction clearing, it is unlikely to be an isolated incident.
CUSIP numbers are also useful for navigating bond markets, as a way to differentiate bonds based on point of origin and maturity date. Bond markets can be notoriously opaque, and CUSIP numbers offer an effective means of sorting bonds.
Final Thoughts
CUSIP numbers are an integral part of contemporary markets, allowing for the seamless processing of millions of transactions per day. However, even in the age of highly advanced digital trading, the transaction clearing process is still open to error, both human and computer.
Therefore, it is important for traders to use the CUSIP numbers in their transaction histories to ensure that their trades are clearing accurately. Furthermore, clearing errors are likely to be systemic, which makes identifying possible errors all that much more important.