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Business Day and Business Day Convention

Business Day Convention” is the convention of adjusting dates specified or determined in respect of a transaction e.g. a Payment Date. The adjustment is necessary before the date in question may fall on a day that is not a “Business Day”.

Under the 2000 ISDA Definitions, a Business Day in relation to a particular place (e.g. Tokyo) is a day that commercial banks and foreign exchange markets settle payments and are open for general business in that place (i.e. Tokyo). Other fancy Business Days that may be specified include a TARGET (Trans-European Automated Real-Time Gross settlement Express Transfer system!) Settlement Day, a New York Fed Business Day, NYSE Business Day.

If is the place is not specified, the Business Day will be determined by reference to the currency payable on the particular payment date by reference to the financial centres indicated for such currency set out in the 2000 ISDA Definitions or the Annex. For example, if euro is the currency of payment, TARGET Settlement Day will be deemed to the Business Day in the absence of other agreement. If more than one currency is involved, the Business Day would be determined in respect of each such currency.

The relevant Business Day Conventions are:

  • Following Business Day Convention”, where the date will be the first following day that is a Business Day
  • Modified Following Business Day Convention”, (or simply “Modified”) where the date will be the first following day that is a Business Day (i.e. same as Following Business Day Convention) unless the first following Business Day is in the next calendar month, in which case that date will be the first preceding day that is a Business Day. So if the date specified is “28 February” and the first following Business Day is 1 March, the date will instead be 27 February (if it is a Business Day).
  • Preceding Business Day Convention”, where the date is the first preceding date that is a Business Day.

The above notes are intended to provide only general outlines and should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They should never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof.

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