What is commercial paper?

Commercial paper (CP) is a type of debt security which is traded by professional and institutional investors in the money markets (a money market instrument) and is:

1. •

   issued to meet short-term funding needs, for periods of between one week and 364 days

2. •

   issued in bearer global form (see Practice Note: Global securities v definitive securities)

3. •

   unsecured, unless it is issued under an asset-backed commercial paper programme (see Practice Note: Asset-backed commercial paper structures)

4. •

   sometimes (but not usually) listed on a stock exchange

5. •

   can be awarded a credit rating from one or more credit rating agencies

6. •

   usually issued at a discount to its face value, rather than being interest-bearing—this means that the return to the investor is equal to the difference between

   1. ◦

      the discounted amount at which the CP is purchased, say 97% of its face value, and

   2. ◦

      the amount payable on redemption of the CP, 100% of its face value, and

7. •

   can be guaranteed

8. •

   issued under a programme with agency structure (no trustee)

9. •

   usually