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Impact of European Monetary Union on Holiday Data

European Monetary Union came into effect on January 1, 1999, with eleven countries participating--Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. On January 1, 2001, Greece became the twelfth participant.

The principal impact of EMU was that, in late-1998, we changed our definition of a bank holiday for the eleven initial participants. We made a similar change for Greece in early-2001. We also changed our definition of ECU holidays in late-1998.

With effect from January 1, 1999, banks in participating EMU countries are generally able to make payments on any day that TARGET, the cross-border euro payments system, is open. The market convention that has emerged is that, in many cases, new euro-denominated financial market transactions use TARGET business days. Sometimes, traders employ a combination of TARGET and local holidays. As a result, for euro trades entered into from 1999 onward, Holiday Data customers will need TARGET holidays.

However, for so called “legacy” transactions in the eleven currencies or ECU that were entered into prior to 1999, or in Greek drachmas prior to 2001, a group of financial industry trade associations has recommended that the terms not be amended beyond converting them into euros. In effect, this means that legacy trades that specify bank holidays in a given city will employ the holiday schedule that would have applied in that city had EMU not occurred. These schedules will also be required for post-EMU trades that employ a combination of TARGET and local holidays.

Until late-1998 (in the case of the initial eleven, or early-2001 in the case of Greece), we defined a bank holiday as a day on which banks in the city in question are closed for making payments. That definition still applies outside Euroland. However, to accommodate the needs of legacy trades, we revised our definition of a bank holiday for all EMU countries to the following: A day on which banks are closed for general business, including dealings in foreign exchange. One effect of this revision is that a day can be considered a bank holiday even though banks may be open for the purpose of making or receiving euro payments.

We also revised our definition of ECU holidays in late-1998. Previously, an ECU holiday was any day that was specified as a non-clearing day by the ECU Banking Association. With effect from 1999, however, the EBA (now renamed the Euro Banking Association) ceased publication of ECU non-clearing days. As a result, we adopted the following revised definition of ECU holidays: The holidays that would result from the implementation of the algorithm employed prior to 1999 by the EBA to calculate ECU bank holidays.

This change was a technical one and did not require us to modify our published holidays. However, one side-effect is that there may now be a mismatch between our holidays and those required to satisfy the ISDA definition of ECU Settlement Day. We recommend that you consult your trade documentation to determine the appropriate set of holidays to be used for ECU-denominated legacy transactions.

The situation became more complicated in late-2001, when the International Swaps and Derivatives Association published the 2001 Euro Protocol. Approximately 240 firms have elected to adhere to some or all of the Protocol. Annex 1 of the Protocol, which took effect on December 17, 2001, states that a good business day will henceforth consist of days on which both (a) banks in the city listed in the trade confirmation and (b) the TARGET payment system are open. Previously, a good business day was defined as a day on which only the city listed in the trade confirmation was open.

If a pair of counterparties have both adhered to Annex 1 of the Protocol, then with effect from December 17, 2001 they should change the basis on which they determine good business days for euro-area trades between them. Henceforth, holidays will be days that are either a TARGET holiday or a bank holiday for the city specified in the trade documentation. For example, if a trade specifies Milan business days, a good business day will be a day that is neither a Milan bank holiday nor a TARGET holiday.

In all other ISDA-documented trades (i.e. one or both of the counterparties have not adhered to Annex 1, or the trade does not involve the euro), the bank holidays that we publish for each city can still be used.

Customers who license TARGET holidays and the local bank holidays can create a composite set of holidays by merging the two. Alternatively, for customers who would like us to supply a separate set of holidays consisting of combined TARGET and local bank holidays, we have been publishing such data since December 2001 (you can identify them in the list of Centers by the presence in their name of the phrase “...plus TARGET”).

The above information is based on our understanding of the facts and is intended solely for the convenience of customers. It does not reflect any bilateral modifications to the ISDA documentation that may have been negotiated between counterparties. Please note that we are not qualified to give legal advice and we recommend that you consult a qualified legal professional on any contractual issues.

If you have any questions about the impact of EMU, send us an e-mail.