Mind Your CUSIPs!
No, a CUSIP is not a Q-Tip, but an important investment identifier. It’s kind of like a bar code for stocks. This identifier is a unique number registered with the Securities and Exchange Commission for stocks, bonds and other investments. You may not have heard of it or used it because Wall Street uses its own version of identification to “market” its products: stock symbols.
Stock symbols have been around almost as long as stocks themselves. Today, stock symbols are used to trade things that aren’t even stocks because the convenience and acceptance of exchange traded stock symbols. So-called Exchange Traded Funds (ETFs) are the most common example of “stocks” with their own symbol that are not stocks but other things such as commodities, options, or groups of stocks. There are a dizzying and growing number of such investments.
But, back to CUSIPs. If you are a bond trader, it’s all you got. To trade bonds, you use CUSIPs not something else that could cause confusion. Bonds aren’t typically traded by average investors, so the Pros haven’t created any system to make it easier to “market” them.
Wall Street’s Namespace
To make trading stocks easier Wall Street created the stock symbol. These are also registered along with its own CUSIP. Like any other marketing brand, stock symbols are important because they provide a means for potential investors to not only remember the company, but to communicate what the company is about.
Fortunately, stocks exchanges go to great lengths to keep stock symbols unique to eliminate confusion. In technology, this is a called a “namespace”, meaning that stock symbols are unique across the NYSE, NASDAQ, and AMEX exchanges. Overseas exchanges have their own namespace, so when you type a symbol, you may get more than one result to account for other exchanges. Often, the exchange itself is used as a namespace identifier. Here’s an example:
Both of these stock symbols are the same bank, Toronto-Dominion Bank, just on different exchanges (the New York Stock Exchange and the Toronto Stock Exchange). So, when you want to invest in a company make sure you get the exchange right because many brokers today allow you to buy investments on other exchanges.
Fortunately, there is no stock symbol TD on the NASDAQ exchange! To eliminate any possible confusion, the namespace prevents this from happening, at least in the U.S stock exchanges.
Wall Street’s Waterfront Property
By far the most coveted symbols on the stock exchanges are the one letter stock symbols. Not only are there only 26 of them, but as mentioned above they are unique across the U.S Exchanges. Facebook just applied for an IPO, which will put the social network among the public sphere of stocks. Unfortunately for Facebook, it can’t have the stock symbol that would make the most sense (F). This one is already taken by Ford Motor Company (F). What will they select? It remains to be seen, I would guess something like FB. (I doubt that there will be a K in the symbol so that it doesn’t cause confusion with that famous four letter word!)
Wall Street’s Used Car Lot
There are a class of investments that have stock symbols, are registered but do not have a uniform symbol representation with brokers. I’m talking about preferred stocks. This is where CUSIPs come in handy because you can always contact your broker with the CUSIP to make sure you get the right investment (the CUSIP will be available from the company itself, in its prospectus or SEC registration – another place I go is to QuantumOnline for specific investment info).
Preferred stocks are stock/bond hybrid investments. Wall Street doesn’t know whether to consider these investments stocks (which have symbols), or bonds (which use CUSIPs to trade).
Here’s an example of confusion I had just this past week. I wanted to invest in the preferred stock, Health Care REIT, Inc. Pfd Ser D 7.875%. If you try to buy this on TradeKing, you will find that they have two different symbols depending on whether you research it or want to trade it!
Researching Symbol: HCN.PRD
Trading Symbol: HCN.D
Come on Wall Street, can’t you fix this so that they work like common stocks?!?
So, keep in mind that you can always use the CUSIP to find your investments.