Broken Date

For the financial markets, a “broken date” indicates a non-standard settlement or maturity date for a financial product. While there are standardised dates that work according to scheduled intervals, the broken dates show deviations from those norms based on reasons like holiday periods, closings of a market, or contractual requirements specific to an arrangement. This paper explores the context of broken dates, their occurrence in financial settlements, and dealing with the risks implicated. 

What is a Broken Date? 

A broken date refers to any maturity or settlement date that does not coincide with the standard schedules for financial instruments such as options, futures, bonds, and other trade instruments. For example, if an option is to expire on the third Friday of a month but falls on a public holiday, the expiration can move to the previous business day, creating a broken date. These deviations are also referred to as “odd dates” and may occur due to: 

• Holidays: When expected settlement dates occur on non-business days. 

• Market Closures: Unforeseen events resulting in market closures. 

• Custom Agreements: Party-specific terms that vary from standard practices. 

Understanding Broken Date 

Investors and financial specialists must recognise and understand broken dates because they influence pricing, liquidity, and settlement processes. 

Key Features 

• Nonstandard Timing: Occurs when the dates of maturity or settlement occur outside typical calendars. 

• Pricing Adjustments: Requests for the recalculation to consider the altered time horizon. 

• Operational Challenges: Intervention at settlement procedures on non-standard dates might be required. 

For instance, take a futures contract, which usually settles on the last Friday of the month. If such a Friday falls on a public holiday, the settlement can be moved to the subsequent business day, leaving a broken date scenario. Such adjustments have the potential to impact the price of the contract as well as traders’ strategies. 

Fundamentals of Broken Date 

The components of broken dates are everything about how they affect the price of financial instruments and the risk involved. 

Adjustments in Pricing 

When a broken date comes into play, generic pricing theories may not automatically apply. However, financial professionals could utilise: 

• Interpolation Strategies: Approximation between known points in the range to determine suitable prices for the out-of-the-box interval. 

• Extrapolation Tools: Forecasting beyond identified data points whenever the broken date moves beyond the regular intervals. 

• Discount Factor Calculations: Modifying present value calculations to account for the time value of money during the non-standard period. 

These techniques assist in correctly pricing broken-date instruments so that both counterparties in a transaction have a reasonable value estimate. 

Liquidity Considerations 

Instruments with broken dates may witness lower liquidity. As they fail to meet standardised schedules, the number of market participants interested in trading them might be smaller, resulting in bid-ask spread widening and transaction costs increasing accordingly. 

Broken Dates in Financial Markets 

Broken dates come into play quite significantly in some regions of financial markets:

Forward Contracts 

Under forward contracts, buyers and sellers commit to purchasing or selling an asset at a later date at a specified price. Regular contracts carry fixed maturity dates, but a broken date can arise where the predetermined settlement date is outside the usual norms. For instance, a forward contract could have a maturity period of 45 days rather than the normal 30 or 60 days, necessitating pricing and risk evaluation adjustments. 

Derivatives Markets 

Securities such as options and swaps tend to have fixed expiration or settlement dates. But broken dates may result from: 

• Nonstandard Maturities: An option could have an expiration date that is outside the normal monthly or quarterly cycle. 

• Market Disruptions: Sudden, unforeseen circumstances forcing markets to close, resulting in rescheduled settlement dates. 

• For example, if an option is to expire on a day when the market is unexpectedly closed, the expiration may shift to the next trading day available, resulting in a broken date. 

Bond Markets 

Bonds generally come with predetermined coupon payment dates. Yet, if a payment date coincides with a holiday, payment may be made on the following business day, resulting in a broken date. This change can influence the calculation of the bond’s yield as well as the investor’s cash flow expectations. 

Risk Management and Hedging Strategies 

Risk management of broken dates requires proper planning and application of particular financial instruments. 

Risk Management Techniques 

1. Contractual Clarity: Precisely specify terms like settlement and maturity date in agreements to foresee deviations.
2. Scenario Analysis: Evaluate the effect of changes in settlement dates on price, liquidity, and total exposure.
3. System Updates: Upgrade trading and settlement systems to accommodate nonstandard dates without failure.

Hedging Strategies 

Investors may use: 

• Forward Rate Agreements (FRAs): These contracts enable parties to agree on interest rates for periods ahead, which aids in controlling exposure to rate change due to non-standard settlement dates. 

• Options Strategies: Use options with versatile expiration dates to hedge against probable unfavourable movements in underlying assets. 

• Cross-Currency Swaps: Contracts for exchanging cash flows in two different currencies can be structured to meet non-standard settlement dates, thus covering currency and interest rate risks. 

For instance, it was reported in February 2025 that American businesses with operations overseas have been resorting more and more to cross-currency swaps to swap dollar-denominated debt for euros. The tactic enables them to take advantage of lower interest rates in the eurozone, effectively wiping out funding expenses and hedging against exchange-rate changes. These are risky plays, though, and the potential for loss if currency prices move against them. 

Frequently Asked Questions