In the context of commercial paper, the term "negotiable" refers to the ability of the financial instrument to be transferred easily from one party to another. Commercial paper is a short-term, unsecured promissory note issued by companies to raise funds for working capital needs, and it typically has maturities ranging from a few days to up to 270 days.
When a commercial paper is described as negotiable, it means that the instrument can be transferred or assigned to another party through endorsement or delivery. This transferability allows investors to buy and sell commercial paper in secondary markets, increasing liquidity and making it an attractive option for short-term financing.
Specifically, negotiable commercial paper must meet certain legal and financial criteria, such as being issued in the form of a bearer instrument or an order instrument. This means that possession of the paper or endorsement to another party can convey ownership rights. As a result, the holder of the commercial paper has the right to receive payment from the issuing company upon maturity.
In summary, the negotiability of commercial paper plays a crucial role in its utility as a financial instrument, facilitating its use in the money market and enabling companies to efficiently manage their short-term financing needs.