Commercial paper

Empirical methods Prescriptive and policy Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity of usually less than 270 days.

In layperson terms, it is like an "IOU" but can be bought and sold because its buyers and sellers have some degree of confidence that it can be successfully redeemed later for cash, based on their assessment of the creditworthiness of the issuing company.

Commercial paper is a money-market security issued by large corporations to obtain funds to meet short-term debt obligations (for example, payroll) and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note.

Commercial paper, though a short-term obligation, is typically issued as part of a continuous rolling program, which is either a number of years long (in Europe) or open-ended (in the United States).

[2] By meeting these qualifications it may be issued without U.S. federal government regulation, that is, it need not be registered with the U.S. Securities and Exchange Commission.

[5] Outside of the United States, the international Euro-Commercial Paper Market has over $500 billion in outstandings, made up of instruments denominated predominantly in euros, dollars and sterling.

[7][8] Commercial paper – though a short-term obligation – is issued as part of a continuous significantly longer rolling program, which is either a number of years long (as in Europe), or open-ended (as in the U.S.).

The dealer market for commercial paper involves large securities firms and subsidiaries of bank holding companies.

In the United States, direct issuers save a dealer fee of approximately 5 basis points, or 0.05% annualized, which translates to $50,000 on every $100 million outstanding.

[citation needed] Defaults on high quality commercial paper are rare, and cause concern when they occur.