NEGOTIATION

I. UCP600 gives a definition to negotiation, and provides for no exception to the

definition of negotiation
Article 2 "Definitions" of UCP600 provides that "Negotiation means the purchase by the
nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents
under a complying presentation, by advancing or agreeing to advance funds to the beneficiary
on or before the banking day on which reimbursement is due to the nominated bank."
According to this definition, an act of a bank, having met the following four conditions,
constitutes a negotiation.
A.The bank is the nominated bank under the negotiable letter of credit (the letter of credit
provides that 41D: Available with the bank by negotiation);
B.The bank does the act of advancing or agreeing to advance funds to the beneficiary;
C.The act is done under a complying presentation after document examination;
D.The advancing or agreeing to advance funds is on or before the banking day on which
reimbursement is due to the bank from the issuing bank (i.e. before the maturity date of the
draft in case of usance letter of credit with draft).
Therefore, under UCP600, when an act of a bank satisfies all the above four conditions
provided by the definition of negotiation, the act is a negotiation (A+B+C+D=negotiation),
and there is no exception. It follows that any debates about whether a negotiation (having
satisfied A+B+C+D) is negotiation due to the so-called presence of any other acts or
arrangements is a false proposition.
nominated bank that has negotiated under a letter of credit has the right to request the
issuing bank to reimburse
Article 7 "Issuing Bank Undertaking" (c) of UCP600:
(c) An issuing bank undertakes to reimburse a nominated bank that has honored or negotiated
a complying presentation and forwarded the documents to the issuing bank. Reimbursement
for the amount of a complying presentation under a credit available by acceptance or deferred
payment is due at maturity, whether or not the nominated bank prepaid or purchased before
maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the
issuing bank's undertaking to the beneficiary.
Confirmation

According to the definition of confirmation under UCP600, "Confirmation means a definite
undertaking of the confirming bank, in addition to that of the issuing bank, to honor or
negotiate a complying presentation."
As to the question what is a confirming bank, UCP600 defines that "Confirming bank means
the bank that adds its confirmation to a credit upon the issuing bank's authorization or
request."
.Negotiation is an authorization given by an issuing bank to a nominated bank, but not
an obligation

Under UCP600, a nominated bank has the right to request the issuing bank to reimburse after
it has negotiated, and has the right not to negotiate before it has negotiated.
In this regard, the definition of nominated bank shows that a nominated bank has the right not
to negotiate. According to the definition of nominated bank under UCP600, "Nominated bank
means the bank with which the credit is available." Obviously, the word "available" shows
that availability (including negotiation) is an authorization given by an issuing bank to a
nominated bank, while the nominated bank can absolutely refuse to accept the arrangement of
"availability"/negotiation and not to grant "availability"/negotiate.
Furthermore, Article 12(a) of UCP600 (which is similar to Article 10(c) of UCP500) provides
that "Unless a nominated bank is the confirming bank, an authorization to honour or negotiate
does not impose any obligation on that nominated bank to honour or negotiate, except when
expressly agreed to by that nominated bank and so communicated to the beneficiary."
Obviously, this Article more clearly shows that negotiation (and also honouring, but we just
discuss negotiation here) is an authorization given by an issuing bank to a nominated bank,
but not an obligation.