How CUSIP Numbers Work and Why Banks Are Suing Over Them

Two hundred and eighty dollars. That's what a bond issuer was paying, according to a lawsuit, just to be handed a nine-character code. Nine characters. Letters and numbers. No paper, no ink.

Two eighty for nine characters? I can make up nine characters right now. For free.

You can. Nobody will accept them. And the story of why starts in July, nineteen sixty-four, with a problem that sounds boring and was genuinely existential. Nobody on Wall Street could agree on what a security was called.

What do you mean, called? It's got a name. General Motors bonds.

Sure. The firm you're trading with calls it G M Corp. The bank behind them has it as General Motors Acceptance. A clerk types it slightly wrong, the trade fails, and the paper certificates pile up in the back office until the street is drowning in them.

So the fix is, what, a phone book?

The fix is a committee with a name only a banker could love. The Committee on Uniform Security Identification Procedures. C-U-S-I-P. One code, one security, forever.

And that worked?

Set up in nineteen sixty-four, in practice around sixty-seven, and by sixty-eight they'd built a permanent office to run it. The CUSIP Service Bureau. Somebody's full-time job, forever, is handing out numbers.

Dream job. Covers stocks, I assume?

Stocks, corporate bonds, commercial paper, mutual funds, government debt, municipal bonds, across the U S and Canada. If your town borrows to rebuild a school, that loan gets a CUSIP before it gets a buyer.

Okay, but who physically types it? Like, is there a person?

A private operation. For years it ran under S and P Global, as CUSIP Global Services. When a bond is being born, the underwriter or the issuer's lawyer requests the identifier, usually in the days before the deal prices. And then it attaches for life.

Attaches how hard?

The trade confirmation. The clearing instruction. The custody record. The interest payment. Your brokerage statement, your tax form. Every one of those is really talking about the CUSIP. The name is decoration. The number is the thing.

So it's plumbing. And nobody thinks about pipes until a bill shows up.

The bill arrived on March fourth, twenty twenty-two. A class action, federal court in Manhattan. And the two eighty per number? That's the cheap part.

That's the CHEAP part?

The real complaint is downstream. Data providers, the Bloombergs of the world, pay license fees to put CUSIPs in their databases. And then the financial institutions using that data were being asked to sign subscription agreements and pay as well.

Hang on. I pay to use the number that describes a bond I already own?

That is precisely the plaintiffs' question. The named ones: a broker-dealer called Dinosaur Financial Group, and the investment arm of the Swiss insurer, Swiss Life. They sued CUSIP Global Services, S and P Global, FactSet, which had just taken over running the system, and the American Bankers Association.

On what grounds?

That the defendants had, quote, conspired for decades to eliminate competition in identifying financial instruments. And that the license fees rested on what the complaint calls bogus and malleable claims about a copyright held by the bankers' association.

Can you even copyright a number?

That is the question, and I want to be careful. Those are allegations in a complaint. The industry's answer is that you're not paying for the digits. You're paying for the machine that keeps the digits clean, every day, across millions of instruments.

And somebody official has blessed that, I'm guessing.

In twenty twenty-one the CUSIP identifier was re-accredited as the United States standard for securities identification. The bankers' association chief, Rob Nichols, said it reflected the, quote, tremendous effort and significant investment that goes into managing the system.

The standard body re-certifies the standard. Bold call.

Fair. But here's where the monopoly argument gets uncomfortable... the alternative is worse. Three rival numbering schemes competing and you're back in nineteen sixty-four. Failed trades. Clerks reconciling by hand.

So the value IS that there's only one.

The value is that there's only one. Which is also, exactly, what makes it a toll booth.

And I've never once seen that toll on anything.

It's somewhere inside the expense ratio of your bond fund. Fractions of a cent, spread across trillions of dollars of debt. Nobody budgets for it. Everybody pays it.

Which is the paper pile all over again. Just invisible.

Sixty years ago a handful of clerks solved a crisis of names by inventing a language of numbers. It worked so well that owning the dictionary became a business. The most profitable thing in finance isn't the trade. It's being the only one allowed to say what the thing is called.