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What is Operative Letter of Credit in Foreign Trade

The rules/procedures under UCP 500 regarding teletransmission to advise a letter of credit, amendments and preliminary advices.

Operative Letter of Credit.

A letter of credit may be sent in the form of (a) a letter, signed by the authorised officials of the issuing bank; or (b) cable/telex message authenticated by the test code between the issuing bank and the advising bank. Or, a preliminary information about the letter of credit may be first sent by telecommunication and the letter of credit sent by mail later. Whether the telecommunication message or the mail confirmation should be the operative instrument is governed by Article 11 of UCP.

Article 1 I (a) (i) of UCP states: “When an issuing bank instructs an advising bank by an authenticated teletransmission to advise a credit, or an amendment to a credit, the teletransmission will be deemed to be the operative credit instrument or the operative amendment, and no mail confirmation should be sent. Should a mail confirmation nevertheless be sent, it will have no effect and the advising bank will have no obligation to check mail confirmation against the operative credit instrument¬† or the operative amendment received by teletransmission.”

Article 11 (a) (ii) provides: “If the teletransmission states ‘full details to follow’ (or words of similar effect) or states that the mail confirmation is to be the operative credit instrument or the operative amendment, then the teletransmission will not be deemed to be the operative credit instrument or the operative amendment . The issuing bank must forward the operative credit instrument or the operative¬† amendment to such advising bank without delay.”

Also Article 1 1 (c) stipulates: “A preliminary advice of the issuance or amendment¬† of an irrevocable credit (pre-advice), shall only be given by an issuing bank if such bank is prepared to issue the operative credit instrument or the operative amendment thereto. Unless otherwise stated in such preliminary advice by the issuing bank, an issuing bank having given such pre-advice shall be irrevocably committed to issue or amend the credit, in terms not inconsistent with the pre-advice, without delay.

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