For over half a century, Standard & Poor’s Global Market Intelligence has operated the Committee on Uniform Security Identification Procedures—Cusip—on behalf of the American Bankers Association (ABA), the owner and founder of the reference data standard.

But now, the European Commission has stipulated that in the ongoing merger between S&P Global and IHS Markit, S&P must divest Cusip, which observers say has been a ready and ample source of income for the data company since the ABA selected it to manage operations in 1968.

“Quite honestly, it’s been a tremendous cash cow for the S&P franchise for many, many years,” says a consultant who works on a client’s relationship with Cusip. It’s a view that will no doubt prime the search for a buyer.

Sources familiar with the matter say that the Intercontinental Exchange (Ice) and the Depository Trust and Clearing Company (DTCC) are potential suitors—though it’s unclear how many firms are ultimately courting Cusip, which could sell for north of $1 billion, according to estimates by two industry observers.

What a deal. You charge somebody to issue a Cusip and then when they use it, you say they have to pay a licensing fee. … Those who license Cusip and pay for Cusip hate them. It’s a red-hot hate.

Industry consultant

“We continue to be in active discussions with several interested parties,” says a spokesperson for S&P Global Market Intelligence in an email to WatersTechnology, while declining to comment on market speculations regarding potential acquirers.

In North American securities markets, and particularly in the US, the nine-digit Cusip is the most widely used identifier of its kind. Its 12-digit counterpart serving the rest of the world—the International Securities Identification Number (Isin)—is owned by the International Organization for Standards (ISO) but operated by more than 120 national number agencies, which are responsible for Isin assignments in their respective countries.

In the US, Cusip Global Services (CGS) is responsible for assigning US Isins in addition to Cusips.

The Cusip system, including US Isins, has become a sore point for those who have no choice but to use it for functions that include trading, clearing and settlement, reporting, internal data management and record-keeping. In each individual function, users must pay for issuance and licensing.

On the licensing side, for example, an end-user using the Cusip numbers of more than 40,000 securities throughout four or more business lines in three or more regions, would potentially incur $477,750 in fees.

Since CGS was established, the majority of revenue and fees has gone to S&P and will likely continue to line the pockets of Cusip’s eventual buyer, while a minority royalty will be paid back to the ABA on each Cusip contract inked.

“What a deal. You charge somebody to issue a Cusip and then when they use it, you say they have to pay a licensing fee,” says the client relationship consultant. “No other issuing agency charges for their data license with the exception of the Sedols. Those who license Cusip and pay for Cusip hate them. It’s a red-hot hate.”

License to cull?

Should any new operator change the current fee structure, it could finally bring some relief—or potentially even add to the burden—for firms who have spent millions over the years in fees.

In response to questions about whether users can expect to see changes in service or contract terms, a spokesperson for the American Bankers Association referred WatersTechnology to a joint statement issued by CGS and ABA in which Scott Preiss, managing director and global head of CGS, said Cusip operations will remain unchanged.

An executive director at a tier-one bank, who worked primarily in reference data until 2015 before moving into technology, says a sale to either Ice or the DTCC makes sense for both companies, but may do little to alleviate end-users’ cost complaints. Ice especially would benefit from operating Cusip to protect its own data franchise, Ice Data Services.

“They can either make that data more ubiquitous or not, depending how they package the licensing of the identifier in with their data,” the bank source says. “If you have a very robust cross-reference capability, you essentially take the edge out of the market for any competitors that are sitting downstream.”

If DTCC were to buy Cusip, it would all but ensure that only Cusip is used in US clearing and settlement, stomping out competitors such as Bloomberg’s Financial Instrument Global Identifier (Figi), which gained US accreditation alongside Cusip in early August.

Ice declined to comment for this story, as did the DTCC, saying: “While DTCC continually assesses opportunities to enhance how we serve the industry, we are unable to comment on market speculation or rumors.”

In the bank executive’s view, the ABA would be the most suitable option to operate the Cusip as it would cut out a middleman in the fee structure and because the ABA is a non-profit with membership from a range of financial institutions—although it does operate the Corporation for American Banking, which is for-profit.

Another experiment would be to spin CGS out into an independent, standalone entity or to operate it under a bank-led consortium, they add. The ABA declined to comment on its own interest in fully owning and operating Cusip, referring WatersTechnology to its earlier statement.

One outstanding question for the consultant is on the regulatory front: Will CGS fall under Securities and Exchange Commission guidelines if it is adopted by a regulated entity such as Ice or DTCC?

“Or does the ABA say, ‘No, thank you,’? Could it become [a] separate entity unto itself or just an operating arm of the ABA? Because that would be the smart thing for them to do,” says the consultant, echoing the bank executive’s view.

In a September meeting by the SEC’s Asset Management Advisory Committee, Gail Bernstein, general counsel for the Investment Adviser Association, told the committee that due to Cusip’s ubiquity, S&P “effectively has a monopoly on security identifiers and it charges licensing fees for virtually any use of Cusips, whether direct or indirect and regardless of the purpose of the use.” The SEC declined to comment for this story. 

While its ultimate fate is unclear, what seems certain is that S&P’s Cusip has reached the end of a 53-year era.