New CUSIPS Remove Barriers for Traders in Physical Precious Metals

In mid-September, CUSIP Global Services (CGS) and Delaware Depository announced the new CUSIPs. "The unique security identifiers, which will be assigned by CGS to the Delaware Depository's fungible products, will be used to help standardize the process of trading and tracking precious metals within investor portfolios," the collaborators wrote.

CPM Group, a commodities research and asset management firm, called this "one significant step for precious metals markets," in a Sept. 27 statement.

CUSIPs are "assigned to financial assets traded in the United States, facilitating assets' trading, buying, selling, holding, and record keeping within investor portfolios. Investors and sell-side institutions use CUSIP numbers to track assets," according to CPM. "The absence of CUSIP numbers for physical precious metals investment products was one of the mechanical aspects of financial markets that kept physical precious metals apart from mainstream investment channels and markets. Assigning CUSIP numbers to an initial 93 gold, silver, platinum, and palladium investment products allows these assets to be more readily traded, bought, sold, and kept in standardized portfolios."

Fungible assets with CUSIPs now include gold bar bullion and coin, silver bar bullion and coin, and platinum and palladium bar bullion and coin. According to CGS, "CUSIP identifiers on individual bars can help foster more efficient trading and delivery�a market where a gold bar can be bought, sold and delivered in a matter of days rather than weeks." The CUSIP number includes an identifier for "a given refiner, metal, weight, purity, and serial number."

Prior to the assignment of CUSIPs, explained Jeffrey Christian of CPM, there was "no way to add physical precious metals to all portfolio management systems, since they run on CUSIP codes. These limitations mean that orders have to be manually placed. . .and managed manually. Most investors do not want to deal with these impediments and the extra work and hassles they cause. Having CUSIP codes removes some of the mechanical or infrastructural impediments that turn fund managers off to investing in physical metal."

"Though it is arguably one of the world's oldest asset classes, gold is one of the last to receive CUSIP identification. As markets and trading and portfolio management mechanisms become increasingly electronic, the need for a universal standard is growing quickly," said Matthew Bastian, director of market, business and product development for CGS, in the September CGS announcement.

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