Eurocommercial paper (ECP)
is a form of unsecured short-term loan which is issued by a bank
on the international money market. ECP are classified into secured and unsecured securities. Issuers most often issue these debt securities due to lower interest rates. Also, issuers prefer to receive financing with the lowest possible transaction costs for the issue, respectively, eurocommercial papers become a good source of financing.
Main characteristics of Eurocommercial papers:
• Eurocommercial papers are mainly issued in the form of discounted securities, but there are also interest-bearing securities in the form of promissory notes.
• The maturity of ECP varies from several days to one year. The most common circulation period is of 182 days.
• The minimum trading lot for ECP is usually $ 500,000. Due to this lot size, institutional investors play the main role in the ECP market, who have access to these securities in the secondary market.
The main positive aspects of Eurocommercial papers for the issuer:
• Eurocommercial paper is a flexible alternative to short-term financing without collateral requirement.
• It’s a cheaper and therefore attractive source of funding.
• The interest rate on Euro-commercial securities is slightly higher than the market rate.
• ECPs are traded on the secondary market.