By Sunil K. Parameswaran
Many of us trade on the stock exchange and spot industry and limit orders on a routine basis. Specifying the stock to be purchased or sold is a reasonably straightforward process, because most organizations concern only 1 form of equity shares. Thus, all we have to have to do is to specify the stock symbol.
At instances, a enterprise could have several share classes that are outstanding. For instance, Tata Motors has issued standard equity shares and shares with differential voting rights (DVR) shares. While ordinary equity shares carry 1 vote per share held, a DVR share will have a decrease voting ideal, say, 1 vote for each 10 shares held. Consequently, if 1 is putting an order for Tata Motors equity, the trader requires to specify no matter if he desires to trade the standard shares, or the DVR shares.
Buy or sell bonds
Bonds, on the other hand, are much more complicated. A enterprise could concern bonds maturing in 2025 or 2030 or 2035. Each is a distinct safety. In 2030, for an issuer, there could be bonds maturing in March or in September. The two constitute distinct securities. For bonds with a March 2030 maturity, the enterprise could have issued bonds with a 6% coupon and an 8% coupon. These two are clearly distinct.
Consequently, a trader who wishes to invest in or sell bonds need to specify the identity of the issuer the year of maturity the month of maturity and the coupon price. For instance, a individual could spot a invest in order for one hundred Tata Motors Debentures with a coupon of 7.50%, maturing in October 2028. In international markets, there can be securities which are identical in terms of the year and the month of maturity, and the coupon price, but which differ with respect to the currency of concern.
For instance, the identical issuer could have issued bonds with a coupon of 4% maturing in September 2030, in each US Dollars and in Euros. Consequently, in such instances, in addition to the coupon price, the maturity year, and the expiration month, the currency also requires to be specified.
Identification quantity
In India, securities are identified applying ISIN or the International Securities Identification Number. All Indian securities have an ISIN that starts with IN. The ISIN is a 12- character alphanumeric code. In the US and Canada they use an identification quantity referred to as CUSIP or the Committee on Uniform Securities Identification Procedures. CUSIP is a 9-character alphanumeric code.
A CUSIP quantity can be converted to an ISIN as follows. If it is a US safety, we have to have to prefix the CUSIP with ‘US’ and add a verify digit at the finish. If it is a Canadian safety, we have to have to prefix the CUSIP with ‘CA’, and add a verify digit at the finish. Some other big markets have their personal safety identification codes. For instance, the UK has a program referred to as SEDOL, which stands for the Stock Exchange Daily Official List. SEDOL is a 7 character-alphanumeric safety identification code. It can be converted to an ISIN, by adding two zeros at the outset, and the nation code soon after that. Like in the case of the CUSIP, an ISIN verify digit is added at the finish. Germany has a program referred to as WKN or Wertpapierkennnummer.
The writer is CEO, Tarheel Consultancy Services