International Securities Identification Numbering Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The International Securities Identification Number (ISIN) is a 12-character alpha-numerical code that identifies uniquely a security (debt instruments such as bonds; share instruments such as equities and collective investments; options; futures; warrants) on the financial markets. This international norm allows a financial intermediary to identify easily the considered security and its associated movements. This identifying number generally accompanies the security description and prospectus.

Confronted with the growing number of financial securities, worldwide organizations decided to attribute a unique number to identify each international financial security. Indeed, the national numbers were generally limited to the considered country and unusable internationally. This standardization enables a uniform and unified financial instruments classification system in order to improve market efficiency (leading to more accuracy and to more effective settlement and clearing). Furthermore, this codification allows the streamlining of back-office routines.

The ISIN does not contain information about the specificities of the considered financial instrument but only identifies the security. However, the securities are not perfectly identified because the ISIN code does not generally specify the exchange place of the selected security (contrary to a ticker symbol).

The Association of National Numbering Agencies (ANNA) was formed in 1992 with 22 National Numbering Agencies. The three main goals of this association, defined in the standard ISO 6166, are to promote, maintain, and develop the ISIN standard. And one of ANNA’s key tasks is to improve its general communication to all market investors. ANNA is the registration authority for the allocation of ISINs. ANNA comprises 77 organizations (number of full members in July 2008) handling the functions of National Numbering Agencies, i.e., they assign ISINs to stocks and other financial instruments in their countries. The two main international numbering agencies in Europe are Euroclear Bank S.A./N.V. and Clear stream Banking. Therefore, these agencies are authorized to assign ISINs for securities issued in specific European countries and they are obliged to make available the information to all securities market participants.

The structure of an ISIN code is described by norm 6166 of the International Organization for Standardization (ISO). An ISIN code has traditionally three parts: a prefix composed of two letters identifying the issuing country of the security (for instance, FR for a security issued in France, and US for a security issued in the United States), a basic number formed by nine characters (letters and/or digits), and a final single check digit.

For example, BE0003796134 is the Dexia ISIN code where BE is the country code. These two first letters indicate that the country of the issuer is Belgium. The following characters, 000379613, formed the original CUSIP (Committee on Uniform Securities Identification Procedures) number, and the last character, 4, is the check digit. The CUSIP number can be itself decomposed in three parts: The first part is a four-character code identifying the issuer, the second part is a three-character code identifying the type of asset, and the third part (two characters) identifies the security issuance. Note that the SEDOL (which is a seven-character code) is also a part of the security’s ISIN and is used for securities issued in the United Kingdom.

The check digit is computed using the following algorithm. We first convert each letter to numbers (A= 10, B = 11, C = 12 …, Y = 34 and Z = 35) and we exclude the check digit, which is what we are computing. Therefore, we obtain for our example of Dexia [11][14] 000379613. We add up (going from right to left) the individual digit numbers doubling one time over two the digit number considered. We begin doubling the first digit, i.e., the first number beginning from the right. We have therefore the following sum: [6] + [1] + [1+2] + [9] + [1+4] + [3] + [0] + [0] + [0] + [4] + [2] + [1] + [2] = 36. We take the 10s modulo (“a mod b” is the remainder of the division of “a” by “b”) of this sum, the result of this operation is 6. We subtract this result from 10, this subtraction is equal to 4. We finally compute the 10s modulo of this final result (in case the result from the first modulo computed is equal to zero). We obtain the digit 4 that is the right final number of the Dexia ISIN code. To avoid programming this algorithm, there are many applications on the Web that compute the check digit for a given ISIN code.

ISIN codes are not the only codes used to identify financial securities. Indeed, it is not always easy for practitioners to remember a series of nine-digit numbers. For this reason, most financial intermediaries or exchange places have other coding systems used by the practitioners. The other codes commonly used are the following: the Tradable Instrument Display Mnemonic (TIDM), the Stock Exchange Daily Official List (SEDOL), the CUSIP, the Reuters, and the Bloomberg codes. Nevertheless, orders expressed in another way are generally converted into ISIN codes.

Bibliography:

Association of National Numbering Agencies, International Standard ISO 6166, 6th ed. 2001-03-15, www.anna-web.com (cited March 2009).

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