A “broken date” in finance refers to a forward contract with an unusual expiration date, which can be advantageous for traders in certain situations. Standardized dates are preferred for convenience and record-keeping purposes. The expiration date is usually clearly disclosed in the contract documentation.
In the financial world, the term “broken date” is used to describe a forward contract with an unusual term or expiration date, such as seven weeks instead of two months. The slang terms “rooster 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 date that is not met, and it is usually highlighted in the contract to make sure the parties are aware of any unusual terms.
The financial community generally prefers to use standardized time periods in creating contracts for convenience. People can set up a forward exchange, for example, with an expiration date in one or two weeks, one month, six months, etc. Using standardized dates as much as possible helps people keep track of their contracts. If someone buys a two-month contract in mid-September, for example, the contract expires on November 15. This makes record keeping more convenient as well as streamlining trade.
With a broken date, the terms of the contract break the standard. In the example above, the contract could expire on November 10, instead of November 15. A contract could be written with an unusual term, such as five weeks or seven months. The deadline is agreed upon while the parties negotiate the details of the contract, and people can use a later date to avoid a dispute or for other reasons. There may be a specific reason why a person wants a contract to mature before or after other contracts generated at the same time to take advantage of market conditions.
Traders keep careful track of forward contracts on your behalf and can buy, sell and trade these contracts, treating them as securities. When a contract with a past date is transferred, attention can be emphasized to inform the new owner, and buyers sometimes look specifically for such contracts because they can 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 stop taking action on an expiring contract.
The expiration date of a contract is usually clearly disclosed in multiple locations in the documentation so there is no confusion. When creating a contract and signing the documentation, if the expiration date is unexpected or does not seem to agree with the date agreed upon in the negotiations, people should address this before signing the contract and legally commit to the written terms.
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