SEC Release IA-1092

What is negotiable?

Negotiable is used to describe the price of a good or security that is not firmly established. It is also used to describe a good or title, such as cash, the ownership of which is easily transferable from one party to another. The other words used to describe the term negotiable are marketable, transferable or unregistered.

Understanding negotiable

You often hear the term negotiable used in reference to the purchase price of a particular property or title. The asking price is not set in stone and can be adjusted according to the circumstances. Most securities are negotiable; they can be easily transferred from one party to another, provided that all appropriate legal documents are included.

In the world of finance, negotiable refers to a legal document or instrument used in place of cash. It is used to make a promise to pay, usually cash flow, at some point in the future. In context, the word tradable implies a cash value and comes with specific instructions on the timing of the cash flow payable. The term negotiable is used to suggest that the document or instrument comes with the same legal support as cash under the law.

Characteristics of a negotiable instrument

For a piece of paper to be as good as cash or negotiable by law, it must be a written document signed by the entity relying on the instrument. This is what makes it marketable or transferable. He must also have an explicit order or promise to pay and indicate a specific amount. Marketable instruments contain an unconditional promise to pay an exact amount. The agreement also provides instructions on the schedule, as on request or at a later time, and must be established to a specific person or entity. That said, if the instrument has no date, it does not affect its negotiability.

Types of negotiable instruments

There are many types of marketable securities, such as checks, term drafts, demand drafts and commercial acceptances to name a few. A check is the most commonly used check that orders a bank to pay an amount upon request. A time project requests payment at some point in the future. This is an example of a negotiable instrument called a certificate of deposit. These can be easily bought and sold between different parties. A sight draft is payable when presented and commercial acceptance is used between buyers and sellers of goods. The buyer accepts the project, signs it and returns it to the seller.

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