CUSIP stands for the Committee on Uniform Securities Identification Procedures. Formed in 1962, this committee developed a system (implemented in 1967) that identifies securities, specifically U.S. and Canadian registered stocks, U.S. government and municipal bonds, exchange-traded funds and mutual funds.

Background on CUSIP Numbers

Seeking to create a standardized method for identifying securities to facilitate the clearance and settlement of trading market transactions, in 1964 the New York Clearing House Association engaged the American Bankers Association (ABA) to come up with a solution. The ABA formed the Committee on Uniform Security Identification Procedures, which created the CUSIP system. The CUSIP Service Bureau, now CUSIP Global Services (CGS), was created in 1968 and tasked with oversight and administration of the system. S&P Capital IQ currently manages CGS on behalf of the ABA.

The CUSIP number consists of a combination of nine characters, including letters and numbers, which act as a sort of DNA for the security, uniquely identifying the company or issuer and the type of security. The first six characters identify the issuer and are assigned in an alphabetical fashion; the seventh and eighth characters (which can be alphabetical or numerical) identify the type of security, and the last digit is used as a check digit.

Private Vs. Public Investment Vehicles

Hedge funds do not have CUSIP numbers because they are private investment vehicles and CUSIP numbers are used to identify securities registered to be sold publicly, usually on an exchange such as the New York Stock Exchange (NYSE).

Hedge funds are private investment vehicles typically structured as limited liability companies (LLCs) or limited liability partnerships (LLPs), and are offered to a limited number of accredited or qualified investors. It is not possible to buy "shares" of a hedge fund on any public exchange. Further, unlike with public investment vehicles, hedge funds require investors to sign disclosure documents, limited partner agreements and subscription agreements that indemnify the hedge fund managers from liability in the event their performances fail to live up to expectations.

Any investor with a brokerage account can purchase stocks, bonds, closed-end funds or ETFs sold on public exchanges. Each company with shares trading on such exchanges is required to follow various regulations dealing with disclosing information, financial statements, business strategies and the risks it faces in a competitive market. Hedge funds, on the other hand, are not required to disclose specific information regarding their strategies.

CUSIP numbers were invented to make market transactions and clearing processes more efficient by creating a standardized nomenclature to identify unique financial instruments. As private investments require neither public transactions nor "clearing," they remain outside the universe of assets that require such identification.

(To learn more, see: How do I find the CUSIP number for a particular stock?)

  1. How do I find the CUSIP number for a stock?

    Finding the nine character CUSIP number for a stock can be a little difficult, but there are now resources that can be used ... Read Answer >>
  2. Are there publicly traded hedge funds?

    See why a privately arranged hedge fund may decide to take its fund public, and how the investing public at large can gain ... Read Answer >>
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