1. Why conventions matter

Market conventions are easy to overlook. They are often seen as a mere administrative burden unrelated to the economic reality of a trade. In practice, they are not.

A one-day shift in a payment date on a EUR 100 million interest rate swap moves a cash amount of several thousand euros. A wrong day count convention systematically misprices every accrual period across the life of the instrument. A misread calendar can cause a settlement to fail entirely. For a practitioner managing live hedges or reconciling cashflows across a portfolio, these are daily operational reality.

This chapter sets out the conventions that govern how cashflows are scheduled and calculated. The same building blocks reappear in every product chapter that follows. They should be read as a reference foundation rather than memorised in isolation.

2. Deal-level dates

Every derivative contract is anchored by a set of dates that define its economic life.

2.1 Trade date

The trade date is the date on which the two parties agree to the terms of the contract. It sets the commercial agreement in motion but does not itself trigger any cash movement.

2.2 Start date

The start date (also called the effective date) is the date on which the instrument becomes economically active. For an Interest Rate Swap (IRS), this is the start of the first accrual period. For most OTC instruments, the start date is not the trade date itself but falls a number of business days later, in line with standard settlement conventions for the relevant market (see section 3 on spot date conventions).

2.3 End date

The end date (also called the maturity or termination date) is the final date of the instrument. For a swap it coincides with the end of the last accrual period. For an FX forward it corresponds to the settlement date.

2.4 Settlement date and payment date

A settlement date is the date on which a contractual obligation is fulfilled. Depending on the instrument, settlement may take the form of a cash payment, a net cash settlement amount, an exchange of currencies, or the physical delivery of an asset. When settlement consists of a cash payment, the settlement date is also referred to as the payment date. In most IR and FX instruments the two terms are used interchangeably, but settlement date is the broader concept.

2.5 Fixing date

A fixing date is the date on which a market variable is observed to determine a contractual cashflow or settlement amount. Depending on the instrument, the observed variable may be an interest rate, an FX rate, an equity index level, or another reference value specified in the contract.

The fixing date is typically linked to the related payment date through a contractual fixing lag (defined in business days) and a calendar rule. For EURIBOR-based instruments, for example, the fixing is observed two TARGET business days before the start of the relevant accrual period.

3. Spot date conventions

In FX and many IR markets, there is a standard lag between the trade date and the start date of the instrument. This lag is called the spot date and reflects the time needed for payment systems to settle a transaction.

For most currency pairs, the spot date is T+2: two business days after the trade date, counting only days on which both relevant payment systems are open. A EUR/USD trade agreed on Monday settles on Wednesday, provided neither the TARGET nor the New York calendar has a holiday on Tuesday or Wednesday.

The same T+2 spot lag applies to the standard start date of interest rate swaps. A EURIBOR-based swap agreed today will have a start date two TARGET business days later. This is referred to as a spot-starting swap. The convention is not coincidental: EURIBOR is the rate at which prime banks lend to each other in the interbank market, and those loans settle on the spot date, T+2. The fixing therefore needs to occur before the money moves, which is why EURIBOR is observed two TARGET business days before the start of each accrual period, exactly the fixing lag described in section 2.5.

The spot date is not merely a technicality. It defines the start date of a spot FX transaction and the reference point from which forward dates are calculated. A forward contract for delivery in three months is priced from the spot date, not from the trade date. This distinction matters when calculating the exact number of days between today and the delivery date of a hedge.

4. Calendars

A business day is a day on which the relevant payment systems or financial markets are open. This excludes weekends and public holidays. Unless dates are specified directly in a contract, the documentation defines which calendar or calendars apply.

In market systems and term sheets, calendars are referenced by standard codes:

• TARGET: the standard calendar for EUR payments, including EURIBOR and €STR instruments. TARGET holidays include New Year’s Day, Good Friday, Easter Monday, Labour Day, Christmas Day, and 26 December.
• USNY: the New York business day calendar, standard for USD payments and widely used in bond markets.
• USGS: the US Government Securities calendar, most commonly applied to SOFR and Treasury-related instruments.
• GBLO: the London business day calendar, standard for GBP payments including SONIA.

For instruments that involve two currencies, a day must be a business day in both relevant calendars for a payment to occur. In a EUR/USD cross-currency swap, if New York observes a public holiday that TARGET does not, that date cannot serve as a payment date.

5. Business day conventions

Scheduled dates are generated arithmetically (for example, every six months from the start date) before any calendar adjustment is applied. When a resulting date falls on a weekend or public holiday, a business day convention specifies how to move it. The unadjusted date is the arithmetically generated date; the adjusted date is the result after applying the convention.

The distinction between unadjusted and adjusted dates is important in practice. Accrual periods are usually calculated using the adjusted dates (the dates on which cash actually moves), but some instruments define accrual periods using unadjusted dates and apply the business day convention only for the purposes of determining the payment date. The term sheet or confirmation will specify which applies.

The four standard conventions are:

• Following (F): move the date forward to the next business day.
• Modified Following (MF): move the date forward to the next business day, unless doing so crosses a month boundary, in which case move backward to the previous business day instead. This is the most common convention for payment dates in IR and FX markets, as it avoids payment dates drifting into a different month.
• Preceding (P): move the date backward to the previous business day.
• Modified Preceding (MP): move backward, unless doing so crosses a month boundary, in which case move forward instead.

6. End-of-month rule

The end-of-month (EOM) rule is a schedule generation convention applied when the start date falls on the last business day of a month. Under this rule, all subsequent scheduled dates are also set to the last business day of their respective months, regardless of what the arithmetic would otherwise produce.

The purpose is consistency: without the EOM rule, a swap starting on 31 January might generate a period ending on 3 March (because 28 February is adjusted forward to 3 March under Modified Following), which is counterintuitive. The EOM rule keeps the schedule aligned at month-end throughout the life of the instrument.

7. Day count conventions

A day count convention defines how to measure the time between two dates as a fraction of a year. This year fraction is used to calculate interest accrual amounts, discount factors, and other cashflow quantities. The basic relationship for a coupon or interest payment is:

The choice of day count convention affects the year fraction and therefore the cashflow amount. The most common conventions in IR and FX markets are:

Actual/360 (Act/360). The year fraction is the actual number of calendar days in the period divided by 360.

This is the standard convention for EURIBOR, €STR, and SOFR instruments, as well as most money market products. Because the denominator is 360 rather than 365, a given number of days produces a slightly larger year fraction, and therefore a slightly larger cashflow, than Act/365.

Actual/365 Fixed (Act/365F). The year fraction uses a fixed denominator of 365, even in a leap year.

This is standard for GBP instruments including SONIA, as well as certain other currencies.

Actual/Actual (Act/Act). The denominator reflects the actual number of days in the relevant year, distinguishing between leap years and non-leap years. This convention is most commonly used in government bond markets.

30/360. Months are treated as having 30 days and the year as having 360 days, with specific rules for month-end dates. Common in fixed-rate bond and some swap markets.

8. Schedule generation

For instruments that generate multiple cashflows over their life, such as an interest rate swap, the cashflow schedule is built by combining the concepts above: the deal-level start and end dates, a payment frequency, the applicable calendar, the business day convention, and the day count convention.

The process starts by generating a sequence of unadjusted dates at the chosen frequency between the start and end dates. These are then adjusted using the business day convention and the relevant calendar. If an EOM rule applies, it is applied during the unadjusted date generation step, before any business day adjustment.

When the start-to-end span does not divide evenly into the chosen frequency, the schedule includes a stub period, a shorter (or occasionally longer) period at one end of the schedule. A stub at the beginning of the schedule is called a front stub; one at the end is called a back stub. A front stub arises when dates are generated backward from the end date; a back stub when they are generated forward from the start date.

Each period in the resulting schedule is defined by four core fields: accrual start date, accrual end date, fixing date, and payment date. The notional may also vary from one period to the next in amortising structures.

Worked example: 3-year EURIBOR 6M floating leg

The following schedule illustrates a EUR 10,000,000 floating leg referencing EURIBOR 6M, with a start date of 6 January 2025 and a maturity of 6 January 2028. Payment frequency is 6 months, the calendar is TARGET, the business day convention is Modified Following, and the day count convention is Act/360. The EURIBOR fixing is observed 2 TARGET business days before the start of each accrual period.

For illustration, a flat EURIBOR 6M rate of 3.00% is assumed across all periods. In practice, each fixing date produces a different observed rate.

A few points worth noting from this schedule:

Period 1 illustrates an adjusted date: 6 July 2025 (the unadjusted 6-month anniversary) falls on a Sunday, so it is moved forward to Monday 7 July under Modified Following. Accrual periods are calculated on the adjusted dates, so the actual number of days accrued differs slightly from period to period.

Period 6 ends on 6 January 2028 rather than 7 January. This is a back stub: the schedule generates forward from the start date, and the final period is cut short at the contractual maturity. The stub has 183 actual days rather than the 181 or 184 produced by the regular semi-annual periods.

The fixing date for period 1 (2 January 2025) falls before the trade date in many real transactions, which is why swaps are sometimes structured with a start date that is further in the future. More commonly, the fixing for period 1 is already known at inception.

9. Settlement types

A settlement type defines how a contract is discharged at maturity or on each payment date.

Physical settlement (or physical delivery): the contractual obligation is settled by delivery of the underlying. The most common example in this Knowledge Hub is a deliverable FX forward, where two currencies are exchanged in full at the agreed rate on the settlement date.

Cash settlement: the obligation is settled by payment of a calculated cash amount, without any exchange of the underlying. Examples include the net settlement of a Non-Deliverable Forward (NDF), where only the difference between the agreed forward rate and the fixing rate is paid, and the periodic coupon payments of an Interest Rate Swap, where only the net interest differential changes hands.

The choice of settlement type has operational and balance sheet consequences. Physical settlement requires the full notional to flow through payment systems; cash settlement requires only the net amount. For corporates operating in currencies with capital controls or restricted convertibility, cash-settled NDFs are often the only available hedging instrument.

10. Key takeaways

• Dates, calendars, and conventions are not administrative details. They determine the exact timing and size of every cashflow on a derivative contract.
• The spot date defines the standard settlement lag between trade date and start date: T+2 for most currency pairs.
• Calendars define which days count as business days. Cross-currency instruments require both relevant calendars to be open.
• Business day conventions specify how to adjust scheduled dates that fall on non-business days. Modified Following is the most common for payment dates in IR and FX markets.
• The distinction between unadjusted and adjusted dates matters: accrual calculations may use one or the other depending on the instrument, and the term sheet will specify which.
• Day count conventions determine the year fraction used in interest calculations. Act/360 is standard for EURIBOR and SOFR; Act/365F is standard for SONIA.
• A schedule is built by combining a frequency, a calendar, a business day convention, and a day count convention. Periods that do not fit the frequency exactly produce a stub.
• Settlement type (physical or cash) determines whether the full notional or only the net amount flows on settlement.

In the chapters that follow, these conventions are applied directly to the term sheets and cashflow structures of specific instruments: FX forwards, interest rate swaps, and options. The product chapters do not redefine the conventions; they apply them.