We live in a truly global marketplace. Gone are the days where stocks are only traded during market hours at a local exchange. Now, many stocks are electronically traded across the world at different exchanges. This is leading exchanges to create systems to help meet global security identification challenges.

One of those systems is the Stock Exchange Daily Official List, or SEDOL, which refers to the unique seven characters assigned to all securities on the London Stock Exchange. The code consists of two parts, a six-place alphanumeric code, and a trailing check digit.

Three reasons why SEDOL is important
According to the London Stock Exchange, SEDOL is a "unique, market-level, global security identifier that increases efficiencies and decreases the costs of cross-border trade failure." By reducing trade failures and streamlining the process, exchanges can offer better service to customers.

The SEDOL itself has three important characteristics that the exchange sees driving its value. First, the SEDOL is unique. The codes have a unique country level identifier that are issued one per country, for example, early codes issued in Britain started with zero while newer codes start with B. Second, it is timely. SEDOL codes are available to issuers to improve new issuance processing time frames. Finally, SEDOL codes have a commonality. The codes are allocated to all countries for both listed and unlisted instruments and the codes cover all asset classes. 

In a sense SEDOL codes are much like CUSIP numbers that are commonly found in the U.S. bond market. It's a unique identifier for a security that goes beyond just a ticker symbol.

The SEDOL in action
Most investors are very familiar with ticker symbols. However, some stocks have more than one ticker depending on the class of shares being traded. Take BP (NYSE:BP) for example. The British oil giant has ordinary shares that trade on the London and Frankfurt exchange as well as an American Depositary Share, or ADS that trades in the U.S. Both use the BP ticker symbol, but these are two very different classes of stock, which is where unique identifiers like SEDOL come into play. We can see BP's SEDOL numbers for its respective share classes in the screenshot below from the company's investor website.

Source: BP Investor website. 

Note that the BP Ordinary Share, which is primarily traded in London, has a different SEDOL number than the company's ADS. There are two things worth noting here, first BP's SEDOLs are all numbers, which tells us they were issued prior to Jan. 26, 2004. Further, the London SEDOL number is just six digits. This is because in older SEDOLs the first number was the country code, which for Britain was zero, and therefore the zero is implied and not included in the listing above. Meanwhile, the one for the U.S. SEDOL corresponds with the earlier U.S. country code of 1. 

More recently issued SEDOLs are alphanumeric, and they don't contain vowels. We see an example of one by taking a look at Britain's other oil giant Royal Dutch Shell (NYSE:RDS-A)(NYSE:RDS-B). As we see from the screenshot below the company has a unique SEDOL number for each class of share traded on each stock exchange.

Source: Royal Dutch Shell Investor website.  

In these more recently issued SEDOLs each letter has a numeric value, which leads to a unique number for each asset being traded.

Because we live in a global marketplace, exchanges needed to develop a way to keep track of all the assets being traded. The SEDOL has become the standard in London as it gives each asset its own unique number. It also helps investors buy the correct stock listing as ticker symbols might be confusing because of a similarity to other listings.