Conditions Governing Negotiability

A bill of exchange, in order to be negotiable, must be an unconditional order to pay, on demand, or at a fixed or determinable future time, a certain sum of money, to order or to bearer.

Conditional Bills, What Constitutes

If payment is dependent upon the happening of a certain contingency, the bill is conditional and non-negotiable, as well as if it were confined to the proceeds of a particular fund, and not chargeable to the credit of the drawer.

Conditional Acceptance

A general acceptance of a conditional bill, or a conditional acceptance of an unconditional bill, makes the acceptance a conditional one and destroys its negotiability.

Eligible Bank Acceptances

General Statutory Provisions

Conditions Governing Eligibility

Any Federal Reserve bank may discount acceptances of the kinds described below in "Regulations of the Federal Reserve Board" which have a maturity at the time of discount of not more than three months' sight, exclusive of days of grace, and which are indorsed by at least one member bank.

Regulations Of The Federal Reserve Board

Relating to Eligible Bank Acceptances

Maturity; indorsement; acceptances eligible for rediscount. - Any Federal Reserve bank may rediscount for any of its member banks, bankers' acceptances which have a maturity at the time of discount of not more than three months' sight, exclusive of days of grace. Such acceptances must be indorsed by at least one member bank; and must grow out of transactions:

(1) Involving the exportation or importation of goods; or

(2) Involving the domestic shipment of goods, provided shipping documents are attached at the time of acceptance; or

(3) Which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title, covering readily marketable staples;

(4) Any Federal Reserve Bank may also acquire drafts or bills of exchange drawn on member banks by banks or bankers in foreign countries or dependencies or insular possessions of the United States, for the purpose of furnishing dollar exchange. To be eligible for rediscount the bill must have been drawn under a credit opened for the purpose of conducting, or settling accounts resulting from, a transaction or transactions involving:

1) The shipment of goods between the United States and any foreign country, or between the United States and any of its dependencies or insular possessions, or between foreign countries; or

(2) The domestic shipment of goods, provided shipping documents are attached at the time of acceptance; or

(3) It must be a bill which is secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples;

(4) Any Federal Reserve Hank may also acquire drafts or bills drawn by a bank or banker in a foreign country or dependency or insular possession of the United States for the purpose of furnishing dollar exchange, and accepted by a member bank Such drafts or bills may be acquired prior to acceptance provided they have the endorsement of a member hank.

Opinions Of Counsel And Rulings Relating to Eligible Bank Acceptances

Acceptances Indorsed By Member Banks Of Another District

Federal Reserve bank may discount acceptances based on the importation or exportation of goods, provided they have a maturity at time of discount of not more than three months, and provided, further, that they are indorsed by at least one member bank. It is immaterial whether this member bank is located in the district of the Federal Reserve bank which is making the discount or in any other district, the term "member bank" being broad enough to include member banks wherever located.

Discount Of Acceptances Not Paid At Federal Reserve Bank

Acceptances, when due, should be paid by checks on the local Federal Reserve bank in order that they may be charged to the account of the acceptor on the day of maturity, or else that acceptances should be paid by checks through the clearings. Federal Reserve banks may, therefore, charge discount for one additional day, except in cases where satisfactory arrangements are made to make actual cash payments at the Federal Reserve bank on the day of maturity.

Paper Of Acceptance Corporation

Acceptances of an acceptance corporation ought to be dealt with exactly as would be the acceptances of a prime private banker. These acceptance corporations are in the same relation to the Federal Reserve System as the private bankers. They cannot become members, but, inasmuch as they expect to give full information about their own financial standing and the nature of their acceptances, and as they exercise a most important function for the further development of our acceptance business, and discount markets, their operation ought to be encouraged in every respect.

Gold coin and gold bullion as "goods." - Gold coin and gold bullion may properly be considered as goods.

Warehouse Receipts Of Independent Warehouses

The Federal Reserve banks should make sure in purchasing or discounting bankers' acceptances or other bills which are secured by warehouse receipts, that the receipt is issued by a warehouse which is independent of the borrower.

Differential Rate For Member Bank Acceptances

The differential rate between member bank acceptances and the acceptances of large non-member institutions, well known throughout the country, and. whose acceptances necessarily have a broad market, usually amount to one-quarter of one per cent. A higher differential rate than this figure is looked upon by the Board as inadvisable.