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What is a Broken Date?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 20 November 2016
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In the financial world, the term “broken date” is used to describe a forward contract with an unusual term or maturity date, such as seven weeks instead of two months. The slang terms “cock date” or “odd date” are also used in reference to the same situation. There are a number of reasons why people may develop a forward contract with a broken date, and it is usually highlighted in the contract to make sure the parties are aware of the unusual terms.

The finance community generally prefers to use standardized lengths of time in the creation of contracts for convenience. People may establish a forward exchange, for example, with a maturity date in one or two weeks, one month, six months, and so forth. Using standardized dates as much as possible helps people track their contracts. If someone buys a two month contract in mid-September, for example, the contract matures on 15 November. This makes recordkeeping more convenient, as well as streamlining trading.

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With a broken date, the terms of the contract break the standard. In the example above, the contract might mature on 10 November, instead of the 15th. A contract could be written with an unusual term, like five weeks or seven months. The term is agreed upon while the parties negotiate the particulars of the contract, and people may use a broken date to avoid a conflict or for other reasons. There may be a specific reason a person wants a contract to mature ahead or behind other contracts generated around the same time to take advantage of market conditions.

Traders keep careful track of the forward contracts in their names and can buy, sell, and trade these contracts, treating them as securities. When a contract with a broken date is transferred, a point may be made of drawing attention to the date to make the new owner aware, and buyers sometimes specifically seek out such contracts because they may be advantageous in some situations. Electronic databases and logging can be very helpful for people trying to keep track of multiple contracts, with reminders as contracts mature so people don't fail to take action on a maturing contract.

The maturity date of a contract is usually clearly disclosed in multiple locations on the documentation so there can be no confusion. When generating a contract and signing the paperwork, if the maturity date is unexpected or does not seem to agree with the date agreed upon in negotiations, people should address this before signing the contract and legally committing to the written terms.

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Spotiche5
Post 2

@raybow- This is a term that is usually covered in college economics, but probably not during the early years of the coursework. Since broken date is a more advanced concept in the study of economics, most college students learn about it later in their coursework.

More than likely, your friend will be a junior or senior before he studies this concept, but it wouldn't hurt to introduce him to the term now since it is a bit complicated.

Raynbow
Post 1

Is broken a term that is discussed in college economics class? I have a friend who is planning to go into economics, and thought he may be interested in this article.

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