International Securities Identification Number
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An International Securities Identification Number (ISIN) uniquely identifies a security. Its structure is defined in ISO 6166. Securities for which ISINs are issued include bonds, commercial paper, stocks and warrants. The ISIN code is a 12-character alpha-numerical code that does not contain information characterizing financial instruments but serves for uniform identification of a security at trading and settlement.
Securities to which ISINs can be issued include debt securities, shares, options, derivatives and futures. ISIN cannot specify a particular trading location in this case, and another identifier, typically MIC (Market Identification Code) or the three-letter exchange code, will have to be specified in addition to the ISIN. The Currency of the trade will also be required to uniquely identify the instrument using this method.
History
ISINs were first used in 1981, but didn't reach wide acceptance until 1989, when the G30 countries recommended adoption. The ISIN was endorsed a year later by ISO with the ISO 6166 standard. In 1994 a global access method was developed to facilitate the electronic exchange of ISIN information. The Numbering Body was set up and charged with the implementation and availability of ISIN throughout the world and were set up for each country.[1]
Where an existing national numbering scheme already existed, this was used as the bases for the ISIN code. For example the Wertpapierkennnummer (WKN). The old code was embedded in the ISIN with the addition of the country code and usually padded to leading zeros to fit, Initially information was distributed via CD-ROMs and this was later replaced by distribution over the internet.
In the 2000s the European Union mandated ISIN codes in some of its regulatory reporting.
Description
An ISIN consists of three parts: Generally, a two letter country code, a nine character alpha-numeric national security identifier, and a single check digit. The country code is the ISO 3166-1 alpha-2 code for the country of issue, which is not necessarily the country where the issuing company is domiciled. International securities cleared through Clearstream or Euroclear, which are worldwide, use "XS" as the country code.
Issuance and Acceptance
ISINs have been slowly gaining traction worldwide in their usage.
The NSIN element of the ISIN can be up to 9 digits long. Shorter numbers are padded with leading zeros before the addition of the country code and a check digit transform the NSIN to an ISIN.
ISINs are being introduced worldwide. Trading, clearing and settlement systems in many countries have adopted ISINs as a secondary measure of identifying securities. Some countries, mainly in Europe, have moved to using the ISIN as their primary means of identifying securities. In addition new European regulations such as Solvency II increasingly require the ISIN to be reported.[citation needed]
Commercial Model
The ISIN is generally included in services sold by financial data vendors. These services are normally paid services as more, value add data is included with the information. In general, the issuer of a security may include the ISIN in issuance papers or other documentation for identification purposes.
Controversy
In 2009, Standard & Poor's was formally charged by the European Commission (EC) with abusing its position as the sole provider of international securities identification codes for United States of America securities by requiring European financial firms and data vendors to pay licensing fees for their use. "This behaviour amounts to unfair pricing," the EC said in its statement of objections which lays the groundwork for an adverse finding against S&P. "The (numbers) are indispensable for a number of operations that financial institutions carry out – for instance, reporting to authorities or clearing and settlement – and cannot be substituted.”[2][3]
In 2011, Standard and Poor's provided six undertakings to the European Commission to remedy the situation. The agreement is applicable to all consuming companies in the European Economic Area. These expire at the end of 2016.
Examples
Apple Inc.
Apple Inc.: ISIN US0378331005, expanded from CUSIP 037833100 The main body of the ISIN is the original CUSIP, assigned in the 1970s. The country code "US" has been added on the front, and an additional check digit at the end. The country code indicates the country of issue. The check digit is calculated using the Luhn algorithm.
Convert any letters to numbers:
U = 30, S = 28. US037833100 -> 3028037833100
Collect odd and even characters:
3028037833100 = (3, 2, 0, 7, 3, 1, 0), (0, 8, 3, 8, 3, 0)
Multiply the group containing the rightmost character (which is the FIRST group) by 2:
(6, 4, 0, 14, 6, 2, 0)
Add up the individual digits:
(6 + 4 + 0 + (1 + 4) + 6 + 2 + 0) + (0 + 8 + 3 + 8 + 3 + 0) = 45
Take the 10s modulus of the sum:
45 mod 10 = 5
Subtract from 10:
10 - 5 = 5
Take the 10s modulus of the result (this final step is important in the instance where the modulus of the sum is 0, as the resulting check digit would be 10).
5 mod 10 = 5
So the ISIN check digit is five.
Treasury Corporation of Victoria
TREASURY CORP VICTORIA 5 3/4% 2005-2016: ISIN AU0000XVGZA3
Convert any letters to numbers:
A = 10, G = 16, U = 30, V = 31, X = 33, Z = 35. AU0000XVGZA -> 103000003331163510.
Collect odd and even characters:
103000003331163510 = (1, 3, 0, 0, 3, 3, 1, 3, 1), (0, 0, 0, 0, 3, 1, 6, 5, 0)
Multiply the group containing the rightmost character (which is the SECOND group) by 2:
(0, 0, 0, 0, 6, 2, 12, 10, 0)
Add up the individual digits:
(1 + 3 + 0 + 0 + 3 + 3 + 1 + 3 + 1) + (0 + 0 + 0 + 0 + 6 + 2 + (1 + 2) + (1 + 0) + 0) = 27
Take the 10s modulus of the sum:
27 mod 10 = 7
Subtract from 10:
10 - 7 = 3
Take the 10s modulus of the result (this final step is important in the instance where the modulus of the sum is 0, as the resulting check digit would be 10).
3 mod 10 = 3
So the ISIN check digit is three.
Check-digit flaw in ISIN
The Treasury Corporation of Victoria ISIN illustrates a flaw in ISIN's check digit algorithm which allows transposed letters: Suppose the ISIN was mis-typed as AU0000VXGZA3
A = 10, G = 16, U = 30, V = 31, X = 33, Z = 35. AU0000VXGZA -> 103000003133163510.
Collect odd and even characters:
103000003133163510 = (1, 3, 0, 0, 3, 3, 1, 3, 1), (0, 0, 0, 0, 1, 3, 6, 5, 0)
Multiply the group containing the rightmost character (which is the SECOND group) by 2:
(0, 0, 0, 0, 2, 6, 12, 10, 0)
Add up the individual digits:
(1 + 3 + 0 + 0 + 3 + 3 + 1 + 3 + 1) + (0 + 0 + 0 + 0 + 2 + 6 + (1 + 2) + (1 + 0) + 0) = 27
Take the 10s modulus of the sum:
27 mod 10 = 7
Subtract from 10:
10 - 7 = 3
Take the 10s modulus of the result (this final step is important in the instance where the modulus of the sum is 0, as the resulting check digit would be 10).
3 mod 10 = 3
So the ISIN check digit is still three even though two letters have been transposed.
BAE Systems
BAE Systems: ISIN GB0002634946, expanded from SEDOL 000263494
The main body is the SEDOL, padded on the front with the addition of two zeros. The country code "GB" is then added on the front, and the check digit on the end as in the example above.
References
- ^ "History of ISIN number codes". isin.net. Retrieved January 29, 2016.
- ^ Securities Technology Monitor, ed. (2009). "EC Charges S&P With Monopoly Abuse".
- ^ Finextra, ed. (2009). "European Commission Accuses S&P of Monopoly Abuse over Isin Fees".