CUSIP numbers were initially designed to track paper assets, but this advanced identification system is spilling over into the physical metals market. Many investors see this tracking infrastructure as a direct threat to their personal privacy and investment control, prompting concerns about the safety of CUSIP precious metals. Understanding how CUSIP numbers work and how they affect physical gold and silver can help investors better protect themselves and their investments.
Understanding CUSIP Numbers
A CUSIP number is a nine-digit alphanumeric code assigned to the majority of financial instruments for the purposes of identification and tracking. CUSIP numbers are associated with all US and Canadian stocks, mutual funds, corporate bonds, government bonds, commercial paper, and even some precious metals. Currently, the CUSIP database houses over 44 million instruments.
Once a financial instrument is given a CUSIP number, it never changes. This ensures the asset or security can be traced through every transaction which, according to the U.S. Securities and Exchange Commission “helps facilitate the clearance and settlement process of securities.” Any movements, transactions, or trends involving an instrument with a CUSIP number are automatically recorded.
A Brief History of CUSIP Numbers
CUSIP (pronounced as Q-sip) is an acronym for Committee on Uniform Securities Identification Procedures. Officially known as the CUSIP Global Services, the system is operated by Standard & Poor’s Global Market Intelligence and is owned by the American Bankers Association (ABA).
The system was borne out of necessity when the rapidly growing stock market became too active for traditional paper tracking methods. In 1964, the New York Clearing House Association (NYCHA), the predecessor to The Clearing House, tasked the ABA with developing a more sophisticated and convenient tracking system. The result was the CUSIP number which was designed to track nearly all financial instruments that had existed or would be created.
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How do CUSIP numbers work?
Similar to a Vehicle Identification Number (VIN), a CUSIP number identifies a particular financial instrument and reveals a detailed history of that asset including equity, debt, and prior transactions. The nine-digit code is broken down into three different parts:
- The Base – The first six positions, known as the base or CUSIP-6, identify the issuer of the code.
- Instrument Type – The seventh and eighth digits designate the type of financial instrument (i.e. bond, fund, or stock).
- Check Digit – The final digit is an automatically generated identifier.
How do I find a CUSIP number?
Finding a CUSIP number is fairly straightforward but varies based on the type of financial instrument. Here are a few methods:
- Companies tend to advertise CUSIP numbers on their websites.
- Official statements such as transaction confirmations, receipts, or routine updates often contain a business’s or fund’s CUSIP information
- The Electronic Municipal Market Access (EMMA) offers CUSIP number information through the Municipal Securities Rulemaking Board (MSRB)
- Standard & Poor has a global rating system allowing subscribers to view company information based on CUSIP numbers.
- A mutual fund often lists the associated CUSIP in its prospectus.
CUSIP Precious Metals
Initially, CUSIP numbers were designed exclusively for stocks, bonds, mutual funds, and other paper assets. That trend was reversed in 2016 when CUSIP Global Services (CGS) set out to develop precious metals with CUSIP numbers. In collaboration with the Delaware Depository, CGS created the first physical metal assets with CUSIP identifiers, based on the system used for paper financial instruments.
Over 93 different kinds of precious metals products – including gold and silver coins and bars.
– from the Delaware Depository received the CUSIP IDs. These numbers replaced internal codes that were already in place to achieve a similar goal. The cited justification for creating CUSIP precious metals was to create a modernized, more efficient, and more transparent metals marketplace.
The Threats of CUSIP Precious Metals
As with any institutional decision, there’s a major disconnect between the purported benefits of CUSIP precious metals and the actual ramifications of the decision. It’s important for investors to understand the full spectrum of potential threats posed by physical metals tagged and monitored by regulators before making any financial decisions.
More price manipulation.
Decades of speculation regarding gold price manipulation were vindicated when two J.P. Morgan traders were sentenced to prison for fraud and price manipulation. Unfortunately, this development probably points to more behind-the-scenes mishandling that has yet to be uncovered. The introduction of CUSIP precious metals could give institutional players greater insight into the market to be used for more accurate and damaging manipulation schemes.
Many investors actively seek out precious metals for increased privacy. The idea of having every financial transaction monitored by an oversight committee doesn’t sit comfortably with many people. Traditionally, precious metals have offered a significantly more private investment alternative, granting investors greater control and oversight. The inclusion of physical assets into the CUSIP framework significantly reduces privacy by giving institutions insights into what precious metals investors purchase, hold, and sell.
Another serious concern surrounding CUSIP precious metals is the potential for government overreach. Right now, the government only requires social security numbers and tax information for a select number of physical assets. When you purchase CUSIP gold or silver, you’re effectively canceling out that advantage. The government could simply speak with regulators to get information about your precious metals investments, possibly without requiring your permission.
The Future of CUSIP Precious Metals
CUSIP precious metals have only been around since 2016, but this new subcategory of physical metals is likely to receive a huge push from institutional and governmental forces.
Matthew Bastian, a Senior Director for CUSIP, has said that there’s a demand for a “universal standard” of identification as the precious metals sphere becomes more electronic. At the same time, the government is making moves towards a digital dollar with research into a central bank digital currency (CBDC).
Although specific CUSIP precious metals developments have been relatively quiet since their unveiling, both major private and public players are clearly pursuing a more centralized and closely monitored financial future which includes precious metals.
The Protection of Private Precious Metals
For centuries, some of the most attractive advantages of precious metals investing have been their ability to safeguard investor privacy, anonymity, and control. Despite all the chatter of “modernization” and “progress”, some investors are still seeking privacy protection for their investments. Any promises of increased security or transparency might come at the small cost of your freedom. True protection from all the economic uncertainty and government overreach has always been – and will always be – private precious metals.
If you’re interested in learning more about investing in gold and silver assets, download our FREE precious metals investing guide. It clearly explains how these physical assets can help protect your privacy and wealth.