Your Money: Identifying market instruments via ISIN code

By Sunil K. Parameswaran

Related posts

EXCLUSIVE – Crypto giant Binance controlled ‘independent’ US affiliate’s bank accounts

June 5, 2023

Why investing just to save tax may be bad for you

June 5, 2023

Many of us trade on the stock exchange and place market and limit orders on a routine basis. Specifying the stock to be bought or sold is a relatively easy task, since most companies issue only one type of equity shares. Thus, all we need to do is to specify the stock symbol.

At times, a company may have multiple share classes that are outstanding. For instance, Tata Motors has issued regular equity shares and shares with differential voting rights (DVR) shares. While ordinary equity shares carry one vote per share held, a DVR share will have a lower voting right, say, one vote for every 10 shares held. Consequently, if one is placing an order for Tata Motors equity, the trader needs to specify whether he wants to trade the regular shares, or the DVR shares.

Buy or sell bonds
Bonds, however, are more complex. A company may issue bonds maturing in 2025 or 2030 or 2035. Each is a different security. In 2030, for an issuer, there may be bonds maturing in March or in September. The two constitute different securities. For bonds with a March 2030 maturity, the company may have issued bonds with a 6% coupon and an 8% coupon. These two are obviously different.

Consequently, a trader who wishes to buy or sell bonds must specify the identity of the issuer; the year of maturity; the month of maturity; and the coupon rate. For instance, a person may place a buy order for 100 Tata Motors Debentures with a coupon of 7.50%, maturing in October 2028. In international markets, there can be securities which are identical in terms of the year and the month of maturity, and the coupon rate, but which differ with respect to the currency of issue.

For instance, the same issuer may have issued bonds with a coupon of 4% maturing in September 2030, in both US Dollars and in Euros. Consequently, in such cases, in addition to the coupon rate, the maturity year, and the expiration month, the currency also needs to be specified.

Identification number
In India, securities are identified using ISIN or the International Securities Identification Number. All Indian securities have an ISIN that begins with IN. The ISIN is a 12- character alphanumeric code. In the US and Canada they use an identification number called CUSIP or the Committee on Uniform Securities Identification Procedures. CUSIP is a 9-character alphanumeric code.

A CUSIP number can be converted to an ISIN as follows. If it is a US security, we need to prefix the CUSIP with ‘US’ and add a check digit at the end. If it is a Canadian security, we need to prefix the CUSIP with ‘CA’, and add a check digit at the end. Some other major markets have their own security identification codes. For instance, the UK has a system called SEDOL, which stands for the Stock Exchange Daily Official List. SEDOL is a 7 character-alphanumeric security identification code. It can be converted to an ISIN, by adding two zeros at the outset, and the country code after that. Like in the case of the CUSIP, an ISIN check digit is added at the end. Germany has a system called WKN or Wertpapierkennnummer.

The writer is CEO, Tarheel Consultancy Services