ISP98 PRESENTATION - K. M. LUTFOR RAHMAN CDCS - Rule 01 - CL

International Standby Practices
(ISP98)
A
K. M. LUTFOR RAHMAN CDCS
PRESENTATION
a K. M. LUTFOR RAHMAN CDCS presentation

Disclaimer
Materials provided in the following slides are for

educational and illustrative purposes only. Although
the information contained herein is believed to be
reliable, the presenter does not assume any
responsibility for any loss that may result from the
reliance by any person upon any information set out
hereunder.

What is a Standby?
???

CAN YOU
REMEMBER
THE STORY
BEHIND THE
SCENE???
TAMIM IQBAL, Bangladesh Cricketer

Scored four consecutive half-centuries in
the ASIA CUP 2012 who was initially
listed as a Standby Player.

Standby Letter of Credit: History
Due to implementation of the Glass-Steagall Act of

1933, functions of investment and commercial banks
were separated in USA.
Commercial banks were barred from issuing bank
guarantees.
In the changed scenario, Commercial banks invented
the concept of ‘Standby’ instead of ‘bank guarantee’
to dodge the legislative prohibition.
Thus Standbys became an American invention.
Though the bar has been withdrawn (in 1996),
practice of standbys continues.
Glass–Steagall Act 1933
Came in to effect on June

16, 1933
The term Glass-Steagall
Act most often refers to
four provisions of the
1933 Banking Act that
separated commercial
and investment banking.
Sen. Carter Glass and Cong. Henry B. Steagall, the co-

sponsors of the Glass–Steagall Act.
What is a Standby Letter of Credit?
Standby credits were a U.S. invention, developed to

allow banks to provide the functional equivalent of
guarantees without violating regulatory restrictions on
the issuance of guarantees.
To maintain the distinction from guarantees, they took

the same form as commercial credits, with payment
based solely on the presentation of documents and
independent of the contractual arrangements between
the beneficiary and applicant of the credit.

What is a Standby Letter of Credit?
A standby letter of credit is basically a bank

guarantee.
A guarantee of payment issued by a bank on behalf

of a client that is used as "payment of last resort"
should the client fail to fulfill a contractual
commitment with a third party.
Also known as a "non-performing letter of credit".

Major Standby Types
Most standbys seem to fall into one of three general

categories:
PERFORMANCE STANDBY: those that secure payment
due on the failure of a person to complete performance of
an obligation,
FINANCIAL STANDBY: those that secure payment due
on the occurrence of a financial default and
DIRECT PAY STANDBY: those that provide for the
payment of amounts coming due on debt instruments in
lieu of payment by the obligor on the debt.

Supports an obligation of the
BID BOND/ applicant to execute a contract if
TENDER BOND the applicant is awarded a bid.
STANDBY When someone (i.e., a corporate
company or government) invites
bid or tender to deliver goods or to
complete a contract, it will be
concerned to receive bids only from
genuine suppliers who are capable
of and willing to sign a contract if
the bid is awarded.

To ensure receiving bids form genuine
BID BOND/ suppliers and to avoid any possible
TENDER BOND losses, the buyers inviting tenders
STANDBY /bids may ask BID BOND/ TENDER
(continued) BOND STNADBYs from the bidders.
The value of such standbys is typically

a small percentage of the contract
value.

Example
20-Feb-20xx
The General Manager,
BAPEX, Dhaka, Bangladesh.
We ABC Bank Ltd hereby irrevocably undertake to pay you, without cavil or
argument, any sum or sums not exceeding in total an amount of USD10,000.00
upon receipt by us of your written demand accompanied by a written statement
that the tenderer, XYZ Ltd is in breach of its obligation under the tender
conditions, because the tenderer
HAS WITHDRAWN ITS TENDER DURING THE PERIOD OF TENDER
VALIDITY or
FAILS OR REFUSE TO EXECUTE THE CONTRACT FORM when awarded the
tender.
This standby expires …………………………………………………………………………………………
This standby is subject to ISP98 rules.
ISP98 Rule 8.02 excluded.
K. M. Lutfor Rahman CDCS Presentation

Secure payment due on the failure of
a person to complete performance of
PERFORMANCE
an obligation.
STANDBY
For example, once a bid is awarded
to a supplier, the purchaser may a
require a standby from the supplier
in the regard that the underlying job
will be performed otherwise the
performance standby will be called
upon.
Generally a Bid Bond Standby is
replaced by a Performance Standby
(when bid is awarded).
Secure an advance payment made by
ADVANCE the beneficiary to the applicant.
PAYMENT For example, once a bid is awarded
STANDBY to a supplier, the supplier may
require a portion of the contract
value (e.g, 20%) in advance to
purchase raw materials and/or to
undertake other preparatory works.
The purchaser may then require an
Advance Payment Standby in
exchange to secure the advancement
made by them.
A standby which backs issuance of
COUNTER another standby by its beneficiary.
STANDBY For example, CITI BANK NA New
York, at the request of one of its
customer ABC Inc., NY, may issue a
counter standby in favour of Dhaka
Bank BD for further issuance of a
performance standby in favour of
GOB on account of ABC Inc., NY.
This is an indirect way of issuing a
standby when a beneficiary (e.g,
GOB in the above example) does not
accept overseas guarantee/standby.
Secure payment due on the
FINANCIAL occurrence of a financial
STANDBY default.
For example, a Financial
Institution advancing loans to
an obligor may require a
financial standby from another
FI to secure their advance in
case of default by the obligor.

Provides for the payment of amounts
DIRECT PAY coming due on debt instruments in
STANDBY lieu of payment by the obligor on the
debt.
Typically it is connected with a
financial standby without regard to a
default.
For example, an issuer of a Direct Pay
standby may directly pay installments
due on a loan taken by the applicant
(obligor) from the beneficiary (a FI)
against installment due notices from
the beneficiary of the standby.
Supports the obligation of an
COMMERCIAL applicant to pay for goods or
STANDBY services in the event of non-
payment by other methods.
For example, an (import-
export) transaction covered by
a commercial letter of credit
may be backed up by a
commercail standby to secure
non-payment by the
commercial letter of credit.
Commercial Credits
VS
Standby Credits
THE DISTINCTION BETWEEN

THEM IS NOWHERE PRECISELY
STATED AND PROBABLY
UNNECESSARY TO STATE.
-OFFICIAL ISP98 COMMENTARY

Commercial Credits VS Standby Credits
Commercial Credits Standby Credits
Undertaking of the issuer Undertaking of the issuer

against performance of against performance of
the beneficiary (i.e. the beneficiary (i.e.
presentation of complying presentation of complying
documents). documents) triggered by
non-performance of the
applicant.

Commercial Credits are Standby Credits are

payment instruments. security instruments
against possible non-
payments (by payment
insturments).
It is common for It is common for standby

commercial credits to credits to remain
unutilized.
be utilized.
The parties involved The parties expect or at

with a commercial least hope (except
credit generally expect direct pay standby)
that the credit will be that the event
drawn upon. triggering the right to
draw is a contingency
that will not occur.

Rules that Govern Standby Letters of Credits
Uniform Customs and Practice for documentary

credits (UCP 600)
The International Standby Practices (ISP 98)
Uniform Rules for Demand Guarantees (URDG
458)
U.N. Convention on Independent Guarantees and
Stand-by Letters of Credit
Local law in the country(ies) of the issuer (and
confirmer)

ISP98 Rules
The International Standby Practices (ISP98)

reflects generally accepted practice, custom, and
usage of standby letters of credit.
It provides separate rules for standby letters of
credit in the same sense that the Uniform Customs
and Practice for Documentary Credits (UCP) and
the Uniform Rules for Demand Guarantees
(URDG) do for commercial letters of credit and
independent bank guarantees.

ISP98 Rules
ISP98 is a work of INSTITUTE OF

INTERNATIONAL BANKING LAW AND
PRACTICE, USA.
Came into effect on 1st January 1999.
ICC has published the rules as one of its
publication (no.590)

UCP VS ISP
UCP ISP
Has been designed for Has been designed for

those letters of credit those letters of credit
whose primary purpose whose primary purpose
is to serve as a medium is to provide credit
of payment. assurance.

UCP VS ISP
UCP ISP
UCP makes an ISP assumes that the

documents are merely pieces
assumption that the of paper having no
documents required commercial value and that the
under a letter of credit reason for drawing is probably
have commercial value that there is a dispute between
the applicant and beneficiary
and that the applicant or the applicant has gone
will authorize payment bankrupt. Therefore, the likely
even when there are impact of discrepancies is that
discrepancies. payment will not be made.
UCP VS ISP
UCP ISP
The UCP formulation is less The ISP formulation is

applicant-friendly than the ISP more applicant-friendly
formulation. For example, the UCP than the UCP formulation.
600 language can be interpreted to
For example, Under the ISP98
require the applicant to indemnify
the issuer against foreign law
version, the applicant’s
liabilities without regard to the indemnification obligation
governing law stated in the credit — arises only if the issuer incurs
which could be a problem for an liabilities under foreign law
applicant if the credit is a UCP 600 other than the law chosen to
credit, the credit is stated to be govern the credit.
subject to New York law, and the
issuer is not located in New York.

RULE 1: GENERAL PROVISIONS
Scope, application, definitions, and interpretation of these Rules

1.01 Scope and application
(a) These Rules are intended to be applied to standby letters of
credit (including performance, financial, and direct pay standby
letters of credit).
(b) A standby letter of credit or other similar undertaking,
however named or described, whether for domestic or
international use, may be made subject to these Rules by express
reference to them.
(c) An undertaking subject to these Rules may expressly modify
or exclude their application.
(d) An undertaking subject to these Rules is hereinafter referred
to as a “standby”.

(a) These Rules are intended to be applied
to standby letters of credit (including
performance, financial, and direct pay
standby letters of credit).

1.01 (a)
The intended use of ISP98

Interpretations rules is for standby letters of
credit.

1.01 (a) ISP98 sub-rule 1.01(a) mentions
the major standby categories:
performance, financial, and direct
pay undertakings.
Interpretations ISP98 rules apply not only to
undertakings payable on default
but also to direct pay standbys or
independent guarantees under
which there need be no default and
where payment is made in the
ordinary course of business.

(b) A standby letter of credit or other similar

undertaking, however named or described,
whether for domestic or international use, may be
made subject to these Rules by express reference to
them.

1.01 (b)
ISP98 rules may be used in both

Interpretations
domestic or international transactions.
ISP98 rules may be applied to any
standby letter of credit or other similar
undertaking by express reference.
Example(s):
(i) This Standby Letter of Credit is
subject to ISP98 rules.
(ii) In field 40C of SWIFT MT760:
ISP98

1.01 (b)
Interpretations
A standby letter of credit or
other similar undertaking,
however named or described,
whether for domestic or
international use, may be made
subject to these Rules by express
reference to them.


(c) An undertaking subject to these Rules may
expressly modify or exclude their application.

1.01 (c)
Interpretations
Any of the ISP98 rules may
be modified or excluded by
express indication in the
undertaking subject to these
rules.


(d) An undertaking subject to these Rules is
hereinafter referred to as a “standby”.

1.01 (d)
All undertakings subject to

Interpretations
ISP98 Rules has a common
name called “standby”.
This is purely for the
convenience of the readers.

20-Feb-20xx
Standby
VALIDITY or
tender.
This standby expires …………………………………………………………………………………………
This standby is subject to ISP98 rules.
ISP98 Rule 8.02 excluded.
Any of the ISP98 rules
may be modified or
excluded by express
indication
1.02 Relationship to law and other Rules

(a) These Rules supplement the
applicable law to the extent not
prohibited by that law.

Law (e.g, UCC) and Rules of Practice
Law (e.g, ISP98, UCP600) are not
exclusive.
VS The application and use of private
Rules of rules of practice, however, does not
render law unnecessary.
Practice
There are certain matters (e.g., fraud
cases) which cannot be decided by
private rule-making or, if decided,
enforced.
Law and practice naturally
complement one another.
A letter of credit is always subject
LAW to law even if it is expressly
VS subject to rules of practice.
Rules of
Practice It is important to understand to
what extent will the practice rules
be given effect under applicable
law.

Many provisions of laws relating to
LAW standby letters of credit and
VS independent guarantees can be varied
and, so, are non-mandatory (In fact in
Rules of US perspective).
Practice
For an example, the US law, Uniform
Commercial Code (UCC) Section 5-
103(c), lists the provisions which are
mandatory, expressly permitting
variation of other provisions.

ISP98 Rule 1.02 (a)
General Rule
ISP98 Rules supplement the

applicable law (unless
supplementation is not
prohibited by that law).
Exception Exception
Applicable law ISP98 takes priority

controls over ISP98 over non-
rules where there is mandatory local
a true conflict. law.

Quiz 01
A guarantee states that it is subject to ISP98 and

local law. Which of the following statements is
correct?
A. All terms of ISP98 take precedence over local
law
B. All local law takes precedence over ISP98
C. ISP98 takes precedence over non-mandatory
local law
D. Local law takes precedence over non-
mandatory ISP98 terms
Ans: (c)

1.02 Relationship to law and other Rules

(b) These Rules supersede conflicting
provisions in any other rules of
practice to which a standby letter of
credit is also made subject.

1.02 (b)
Interpretations When a standby letter of credit
(or an independent guarantee) is
issued subject to both ISP98 and
ISP other rules of practice, the ISP
VS would control over a conflicting
provision in another rule.
Other Rules of For example, ISP does not allow partial
Practice transfer of a credit but UCP does.
Therefore, when a Standby Letter of
Credit is subject to both ISP98 and
UCP600, the Standby LC can not be
transferred partially since ISP98 would
control over UCP600.
Standby Letter of Credit
20-Feb-20xx
VALIDITY or
tender.
This standby LC expires ………………………………………………………………………………
This standby LC is subject to ISP98 and UCPDC600 Rules.
ISP98 rules take priority

over conflicting UCP600
rules.

1.03 Interpretative principles

These Rules shall be interpreted as mercantile usage
with regard for:
(a) integrity of standbys as reliable and efficient
undertakings to pay;
(b) practice and terminology of banks and businesses
in day to day transactions;
(c) consistency within the worldwide system of
banking operations and commerce; and
(d) worldwide uniformity in their interpretation and
application.
Rule 1.03
ISP98 Rule 1.03 (Interpretative

Interpretations
Principles) formulates the
principles upon which ISP98 is
based.

1.04 Effect of the Rules
Unless the context otherwise requires, or unless expressly
modified or excluded, these Rules apply as terms and conditions
incorporated into a standby, confirmation, advice, nomination,
amendment, transfer, request for issuance, or other agreement
of:
(i) the issuer;
(ii) the beneficiary to the extent it uses the standby;
(iii) any advisor;
(iv) any confirmer;
(v) any person nominated in the standby who acts or agrees to
act; and
(vi) the applicant who authorizes issuance of the standby or
otherwise agrees to the application of these Rules.
Effect of Applicable to any person who
ISP98 acts on a standby subject to the
Rules rules and any transaction
subject to the rules.
ISP98 Rules

1.05 Exclusion of matters related to due issuance and

fraudulent or abusive drawing
These Rules do not define or otherwise provide for:
(a) power or authority to issue a standby;
(b) formal requirements for execution of a standby
(e.g. a signed writing); or
(c) defenses to honour based on fraud, abuse, or
similar matters.
These matters are left to applicable law.

1.05
Interpretations
Following matters are not dealt by
ISP98 ISP98 Rules and are left to
Rules applicable law:
assume
that all
(a) power or authority to issue a
standbys standby;
are (b) formal requirements for execution
properly of a standby (i.e., necessary formalities
issued and
the world for execution of a standby)
is free (c) defenses to honour based on fraud,
from all abuse, or similar matters. (i.e., issues
forms of
related to Letter of credit fraud)
fraud.

General principles
1.06 Nature of standbys
(a) A standby is an irrevocable, independent,
documentary, and binding undertaking when
issued and need not so state.

1.06 (a)
A standby is automatically an
Nature of standbys
irrevocable, independent,
documentary, and binding
undertaking when issued.

General principles
1.06 Nature of standbys
(b) Because a standby is irrevocable, an issuer’s
obligations under a standby cannot be amended or
cancelled by the issuer except as provided in the
standby or as consented to by the person against
whom the amendment or cancellation is asserted.

1.06 (b)
Significance of
irrevocability
An issuer’s obligations under a
standby cannot be amended or
cancelled by the issuer except
(i) as provided in the standby or
(ii) as consented to by the
person against whom the
amendment or cancellation is
asserted.

(c) Because a standby is independent, the enforceability

of an issuer’s obligations under a standby does not
depend on:
(i) the issuer’s right or ability to obtain reimbursement
from the applicant;
(ii) the beneficiary’s right to obtain payment from the
applicant;
(iii) a reference in the standby to any reimbursement
agreement or underlying transaction; or
(iv) the issuer’s knowledge of performance or breach of
any reimbursement agreement or underlying transaction.

1.06 (c)
The enforceability of an issuer’s
Significance of
obligations under a standby does not
independence of depend on:
a standby (i) the issuer’s right or ability to obtain
reimbursement from the applicant;
(ii) the beneficiary’s right to obtain payment
from the applicant;
(iii) a reference in the standby to any
reimbursement agreement or underlying
transaction; or
(iv) the issuer’s knowledge of performance or
breach of any reimbursement agreement or
underlying transaction.
(d) Because a standby is documentary, an issuer’s

obligations depend on the presentation of
documents and an examination of required
documents on their face.

1.06 (d)
An issuer’s obligations depend

Significance of
being
on the presentation of
documentary of a documents and an examination
standby
of required documents on their
face.

(e) Because a standby or amendment is binding

when issued, it is enforceable against an issuer
whether or not the applicant authorized its
issuance, the issuer received a fee, or the
beneficiary received or relied on the standby or the
amendment.

1.06 (e)
A standby (or amendment)

Effect of binding
undertaking is enforceable against an
issuer whether or not
the applicant authorized its
issuance,
the issuer received a fee, or
the beneficiary received or relied
on the standby or the
amendment.

General principles
1.07 Independence of the issuer-beneficiary
relationship
An issuer’s obligations toward the
beneficiary are not affected by the issuer’s
rights and obligations toward the applicant
under any applicable agreement, practice, or
law.

Rule 1.07
Independence of the An issuer’s obligations

issuer-beneficiary
relationship
toward the beneficiary are
not affected by any separate
relationship that the issuer
has with the applicant.

General principles
1.08 Limits to responsibilities
An issuer is not responsible for:
(a) performance or breach of any underlying transaction;
(b) accuracy, genuineness, or effect of any document
presented under the standby;
(c) action or omission of others even if the other person is
chosen by the issuer or nominated person; or
(d) observance of law or practice other than that chosen in
the standby or applicable at the place of issuance.

Rule 1.08
An issuer is not responsible for:
Limits to (a) performance or breach of any
responsibilities underlying transaction;
of the issuer (b) accuracy, genuineness, or effect of
any document presented under the
standby;
(c) action or omission of others even if
the other person is chosen by the
issuer or nominated person; or
(d) observance of law or practice other
than that chosen in the standby or
applicable at the place of issuance.
Terminology
1.09 Defined terms
In addition to the meanings given in standard banking
practice and applicable law, the following terms have or
include the meanings indicated below:
(a) Definitions
“Applicant” is a person who applies for issuance of a standby
or for whose account it is issued, and includes (i) a person
applying in its own name but for the account of another
person or (ii) an issuer acting for its own account.
“Beneficiary” is a named person who is entitled to draw under
a standby. See Rule 1.11(c)(ii).

Definitions
“Applicant” is a person who applies

Applicant
for issuance of a standby or for whose
account it is issued, and includes
(i) a person applying in its own name
but for the account of another person
or
(ii) an issuer acting for its own
account.

Applicant In some situations, the person
who applies for issuance of a
standby is not the same person
noted on the face of the standby.
Where these two persons are
different, the ISP98 definition
notes that the term “applicant”
includes not only the person
listed on the face of the standby
but also the person applying if it
is someone else.
Definitions
Beneficiary “Beneficiary” is a named

person who is entitled to
draw under a standby.

1.09 Defined terms

“Business day” means a day on which the place of
business at which the relevant act is to be
performed is regularly open; and
“Banking day” means a day on which the relevant
bank is regularly open at the place at which the
relevant act is to be performed.
“Confirmer” is a person who, upon an issuer’s
nomination to do so, adds to the issuer’s
undertaking its own undertaking to honour a
standby. See Rule 1.11(c)(i).
RULE 1.09(a): Definitions
Business day Banking day
“Business day” means a “Banking day” means a

day on which the place day on which the
of business at which relevant bank is
the relevant act is to be regularly open at the
performed is regularly place at which the
open. relevant act is to be
performed.

1.09 Defined terms

“Confirmer” is a person who, upon an issuer’s
nomination to do so, adds to the issuer’s
undertaking its own undertaking to honour a
standby. See Rule 1.11(c)(i).

Definitions
“Confirmer” is a person who,
Confirmer upon an issuer’s nomination to
do so, adds to the issuer’s
undertaking its own undertaking
to honour a standby.

1.09 Defined terms

“Demand” means, depending on the context, either a request
to honour a standby or a document that makes such
request.
“Document” means a draft, demand, document of title,
investment security, invoice, certificate of default, or any
other representation of fact, law, right, or opinion, that
upon presentation (whether in a paper or electronic
medium), is capable of being examined for compliance with
the terms and conditions of a standby.
“Drawing” means, depending on the context, either a demand
presented or a demand honoured.
Definitions
“Demand” means, depending on

the context, either
Demand
a request to honour a standby or
a document that makes such
request.

Definitions
“Document” means a draft, demand,

“Document”
document of title, investment security,
invoice, certificate of default, or any
other representation of fact, law,
right, or opinion, that upon
presentation (whether in a paper or
electronic medium), is capable of
being examined for compliance with
the terms and conditions of a standby.

Definition
“Drawing” means, depending on

Drawing
the context, either a demand
presented or a demand
honoured.

1.09 Defined terms

“Expiration date” means the latest day for a
complying presentation provided in a
standby.
“Person” includes a natural person,
partnership, corporation, limited liability
company, government agency, bank, trustee,
and any other legal or commercial
association or entity.
Definition
“Expiration date” means the
Expiration date latest day for a complying
presentation provided in a
standby.

Definition
“Person” includes a natural

Person person, partnership,
corporation, limited liability
company, government
agency, bank, trustee, and
any other legal or
commercial association or
entity.

1.09 Defined terms

“Presentation” means, depending on the context,
either the act of delivering documents for
examination under a standby or the documents so
delivered.
“Presenter” is a person who makes a presentation as
or on behalf of a beneficiary or nominated person.
“Signature” includes any symbol executed or
adopted by a person with a present intent to
authenticate a document.

Definition
“Presentation” means,
Presentation
depending on the context, either
the act of delivering documents
for examination under a standby
or the documents so delivered.

Definition
Presenter “Presenter” is a person who

makes a presentation as or
on behalf of a beneficiary or
nominated person.

Definition
“Signature” includes any symbol

Signature executed or adopted by a person
with a present intent to
authenticate a document.

1.09 Defined terms
b) Cross references
“Amendment”—Rule 2.06
“Advice”—Rule 2.05
“Approximately” (“About” or “Circa”)—Rule 3.08(f)
“Assignment of Proceeds”—Rule 6.06
“Automatic amendment”—Rule 2.06(a)
“Copy”—Rule 4.15(d)
“Cover instructions”—Rule 5.08
“Honour”—Rule 2.01
“Issuer”—Rule 2.01
“Multiple presentations”—Rule 3.08(b)
“Nominated person”—Rule 2.04
“Non-documentary conditions”—Rule 4.11
“Original”—Rule 4.15(b) and (c)
“Partial drawing”—Rule 3.08(a)
“Standby”—Rule 1.01(d)
“Transfer”—Rule 6.01
“Transferee beneficiary”—Rule 1.11(c)(ii)
“Transfer by operation of law”—Rule 6.11
(c) Electronic presentations

The following terms in a standby providing for or permitting electronic
presentation shall have the following meanings unless the context
otherwise requires:
“Electronic record” means:
(i) a record (information that is inscribed on a tangible medium or that
is stored in an electronic or other medium and is retrievable in
perceivable form);
(ii) communicated by electronic means to a system for receiving,
storing, re-transmitting, or otherwise processing information (data,
text, images, sounds, codes, computer programs, software, databases,
and the like); and
(iii) capable of being authenticated and then examined for compliance
with the terms and conditions of the standby.

“Authenticate” means to verify an electronic record by

generally accepted procedure or methodology in
commercial practice:
(i) the identity of a sender or source, and
(ii) the integrity of or errors in the transmission of
information content.
The criteria for assessing the integrity of information in an
electronic record is whether the information has remained
complete and unaltered, apart from the addition of any
endorsement and any change which arises in the normal
course of communication, storage, and display.

“Electronic signature” means letters, characters, numbers, or

other symbols in electronic form, attached to or logically
associated with an electronic record that are executed or
adopted by a party with present intent to authenticate an
electronic record.
“Receipt” occurs when:
(i) an electronic record enters in a form capable of being
processed by the information system designated in the
standby, or
(ii) an issuer retrieves an electronic record sent to an
information system other than that designated by the
issuer.
1.10 Redundant or otherwise undesirable terms

(a) A standby should not or need not state that it is:
(i) unconditional or abstract (if it does, it signifies merely that payment

under it is conditioned solely on presentation of specified documents);
(ii) absolute (if it does, it signifies merely that it is irrevocable);
(iii) primary (if it does, it signifies merely that it is the independent
obligation of the issuer);
(iv) payable from the issuer’s own funds (if it does, it signifies merely
that payment under it does not depend on the availability of applicant
funds and is made to satisfy the issuer’s own independent obligation);
(v) clean or payable on demand (if it does, it signifies merely that it is
payable upon presentation of a written demand or other documents
specified in the standby).
Sometimes, as per requirement of the
Redundant or beneficiary or their lawyers, few
otherwise terminologies may be used in a
undesirable standby (subject to ISP98 rules)
terms which may not correspond fully with
Standard Standby Practice.
For example, a statement in a standby
that it is unconditional, may be
interpreted by someone that there is
no requirement to present documents
under the standby though payment
under a standby is always conditioned
to presentation of documents.
Therefore, ISP98 Rule 1.10(a)
Redundant or discourage use of those
otherwise
terminologies and, at the same
undesirable
terms time, explains the meaning of
those terms if used in a standby
even though.

1.10 (a)
(a) A standby should not or need

not state that it is:
(i) unconditional or abstract

(ii) absolute
Redundant (iii) primary
or
otherwise (iv) payable from the issuer’s own
undesirable
terms
funds
(v) clean or payable on demand

1.10 (a)
(i) A standby is Unconditional or abstract:
Payment under a standby is conditioned solely
on presentation of specified documents.
(ii) A standby is Absolute: A standby is
irrevocable.
Significances
of Redundant (iii) A standby is Primary: A standby is a
or otherwise independent obligation of the issuer.
undesirable (iv) A standby is Payable from the issuer’s
terms if used own funds: Payment under a standby does not
in a standby
depend on the availability of applicant funds.
(v) A standby is clean or payable on
demand: A standby is payable upon
presentation of a written demand or other
documents specified in the standby.

(b) A standby should not use the term

“and/or” (if it does it means either or
both).

1.10(b)
ISP98 sub-rule 1.10(b) recognizes
Interpretation that the use of the term “and/or” in
a standby can give rise to confusion
and recommends that it not be
used. The rule provides that where
it is used it “means either or both”.
For example, if a standby states
that it is payable against
presentation of document A and/or
document B, the beneficiary is
entitled to present either document
or to present both.
(c) The following terms have no single accepted

meaning:
(i) and shall be disregarded:
“callable”,
“divisible”,
“fractionable”,
“indivisible”, and
“transmissible”.

1.10(c) (i) There are certain terms that are
used in connection with standby
INTERPRETATION
letters of credit that have no
single accepted meaning. Some
of these terms are so ambiguous
and confusing that ISP98 sub-
rule 1.10(c)(i) provides that they
shall be disregarded.

i. “callable”,
Terms that
shall be ii. “divisible”,
disregarded iii. “fractionable”,
iv. “indivisible”,
v. “transmissible”

(c) The following terms have no single accepted meaning:
(ii) and shall be disregarded unless their context gives them

meaning:
“assignable”,
“evergreen”,
“reinstate”, and
“revolving”.

1.10(c) (ii)
There are terms which have no single
accepted meaning but whose perspective is
Interpretation typically explained in a standby letter of
credit.
ISP98 sub-rule 1.10(c)(ii) recognizes that the
use of the terms - Assignable, Evergreen,
Reinstate, and Revolving - by themselves has
no implication but that these terms can be
given meaning in the context of the standby
letter of credit.
There is no inherent problem in the use of
these terms as long as it is clear what was
intended and as long as that is clearly
explained and stated in the standby.
Terms that shall
i. “assignable”
be disregarded ii. “evergreen”
unless their them
meaning is iii. “reinstate”
cleared in the
standby iv. “revolving”

1.11 Interpretation of these Rules

(a) These Rules are to be interpreted in the
context of applicable standard practice.
(b) In these Rules, “standby letter of credit”
refers to the type of independent
undertaking for which these Rules were
intended, whereas “standby” refers to an
undertaking subjected to these Rules.

RULE 1.11
Interpretation
(a) These Rules are to be
of ISP Rules interpreted in the context of
applicable standard practice.
(b) In these Rules, “standby
letter of credit” refers to the type
of independent undertaking for
which these Rules were
intended, whereas “standby”
refers to an undertaking
subjected to these Rules.
(c) Unless the context otherwise requires:

(i) “Issuer” includes a “confirmer” as if the confirmer were a
separate issuer and its confirmation were a separate standby
issued for the account of the issuer;
(ii) “Beneficiary” includes a person to whom the named
beneficiary has effectively transferred drawing rights (“transferee
beneficiary”);
(iii) “Including” means “including but not limited to”;
(iv) “A or B” means “A or B or both”; “either A or B” means “A or
B, but not both”; and “A and B” means “both A and B”;
(v) Words in the singular number include the plural, and in the
plural include the singular; and
(vi) Words of the neuter gender include any gender.
RULE 1.11 (c)
“Issuer” = “confirmer”
Interpretation “Beneficiary”=“transferee beneficiary”
of ISP Rules “Including” means “including but not
limited to”;
“A or B”: “A or B OR both”;
“either A or B” means “A or B, but not
both”; and
“A and B” means “both A and B”;
Singular=plural and vice versa
Neuter gender = any gender

(d) (i) Use of the phrase “unless a standby otherwise states”

or the like in a rule emphasizes that the text of the standby
controls over the rule;
(ii) Absence of such a phrase in other rules does not imply that
other rules have priority over the text of the standby;
(iii) Addition of the term “expressly” or “clearly” to the phrase
“unless a standby otherwise states” or the like emphasizes that
the rule should be excluded or modified only by wording in
the standby that is specific and unambiguous; and
(iv) While the effect of all of these Rules may be varied by the
text of the standby, variations of the effect of some of these
Rules may disqualify the standby as an independent
undertaking under applicable law.
(i) Use of the phrase “unless a
Interpretation of standby otherwise states” or the
ISP Rules
like in a rule emphasizes that the
text of the standby controls over
the rule;
(ii) Absence of such a phrase in

other rules does not imply that
other rules have priority over the
text of the standby;

(iii) Addition of the term “expressly” or
Interpretation “clearly” to the phrase “unless a
of ISP Rules standby otherwise states” or the like
emphasizes that the rule should be
excluded or modified only by wording in
the standby that is specific and
unambiguous; and
(iv) While the effect of all of these
Rules may be varied by the text of the
standby, variations of the effect of
some of these Rules may disqualify the
standby as an independent undertaking
under applicable law.
(e) The phrase “stated in the standby” or the

like refers to the actual text of a standby
(whether as issued or effectively amended)
whereas the phrase “provided in the
standby” or the like refers to both the text of
the standby and these Rules as incorporated.

RULE 1.11 (e)
“Stated in the standby”=

Actual Text of the Standby
“Provided in the standby”=

Actual Text of the Standby+ISP98

ISP98 PRESENTATION - K. M. LUTFOR RAHMAN CDCS - Rule 01 - CL

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International Standby Practices

a K. M. LUTFOR RAHMAN CDCS presentation

Materials provided in the following slides are for

a K. M. LUTFOR RAHMAN CDCS presentation

a K. M. LUTFOR RAHMAN CDCS presentation

TAMIM IQBAL, Bangladesh Cricketer

a K. M. LUTFOR RAHMAN CDCS presentation

Due to implementation of the Glass-Steagall Act of

Came in to effect on June

Sen. Carter Glass and Cong. Henry B. Steagall, the co-

Standby credits were a U.S. invention, developed to

To maintain the distinction from guarantees, they took

a K. M. LUTFOR RAHMAN CDCS presentation

A standby letter of credit is basically a bank

A guarantee of payment issued by a bank on behalf

Also known as a "non-performing letter of credit".

a K. M. LUTFOR RAHMAN CDCS presentation

Most standbys seem to fall into one of three general

a K. M. LUTFOR RAHMAN CDCS presentation

a K. M. LUTFOR RAHMAN CDCS presentation

The value of such standbys is typically

a K. M. LUTFOR RAHMAN CDCS presentation

K. M. Lutfor Rahman CDCS Presentation

a K. M. LUTFOR RAHMAN CDCS presentation

THE DISTINCTION BETWEEN

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Commercial Credits Standby Credits

Undertaking of the issuer Undertaking of the issuer

a K. M. LUTFOR RAHMAN CDCS presentation

Commercial Credits Standby Credits

Commercial Credits are Standby Credits are

It is common for It is common for standby

Commercial Credits Standby Credits

The parties involved The parties expect or at

a K. M. LUTFOR RAHMAN CDCS presentation

Uniform Customs and Practice for documentary

a K. M. LUTFOR RAHMAN CDCS presentation

The International Standby Practices (ISP98)

a K. M. LUTFOR RAHMAN CDCS presentation

ISP98 is a work of INSTITUTE OF

a K. M. LUTFOR RAHMAN CDCS presentation

Has been designed for Has been designed for

a K. M. LUTFOR RAHMAN CDCS presentation

UCP makes an ISP assumes that the

The UCP formulation is less The ISP formulation is

a K. M. LUTFOR RAHMAN CDCS presentation

Scope, application, definitions, and interpretation of these Rules

Scope, application, definitions, and interpretation of these Rules

1.01 Scope and application

a K. M. LUTFOR RAHMAN CDCS presentation

The intended use of ISP98

a K. M. LUTFOR RAHMAN CDCS presentation

a K. M. LUTFOR RAHMAN CDCS presentation

Scope, application, definitions, and interpretation of these Rules

1.01 Scope and application

(b) A standby letter of credit or other similar

a K. M. LUTFOR RAHMAN CDCS presentation

ISP98 rules may be used in both

a K. M. LUTFOR RAHMAN CDCS presentation

a K. M. LUTFOR RAHMAN CDCS presentation

Scope, application, definitions, and interpretation of these Rules

1.01 Scope and application