ISP98: International Standby Practices
The ICC rules written only for standbys, and the handful of them that decide exam questions.
ISP98, the International Standby Practices (ICC Publication No. 590), is a set of rules written only for standby letters of credit. It took effect on 1 January 1999. Before it, standbys were issued under UCP, which was built for commercial credits and fits a standby only "to the extent applicable", as UCP 600 Article 1 still says.
A standby is usually a backstop: it is drawn when something has gone wrong, such as an unpaid invoice, a missed loan repayment or a failed performance. ISP98 is written for that use, with rules on demands, wording, closures and dishonour that commercial-credit rules leave out.
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The ISP98 Rules That Produce Questions
- Rule 1.01: scope
- Applies to standbys, including performance, financial and direct pay standbys, when the standby says it is subject to ISP98.
- Rule 1.06: nature
- A standby is irrevocable, independent, documentary and binding from issue. The issuer's obligation does not depend on the applicant's performance or on the issuer's right to be reimbursed.
- Rule 1.05: what ISP98 leaves out
- Power to issue, formal requirements for execution, and defences such as fraud are left to the applicable law.
- Rule 3.08: partial and multiple drawings
- Allowed unless the standby says otherwise. "About", "approximately" or "circa" allows 10% either way.
- Rule 4.08: implied demand
- If a standby names no document at all, it is still treated as requiring a documentary demand for payment.
- Rule 4.09: identical wording
- Wording in quotation marks must be reproduced, but typing errors that do not change the meaning are allowed. If the standby says "exact" or "identical", the wording must match exactly, errors included.
- Rule 4.11: non-documentary conditions
- A condition with no document to evidence it, and which the issuer cannot check from its own records, is disregarded.
- Rule 5.01: notice of dishonour
- Must be given within a time that is not unreasonable after presentation. Within three business days is deemed not unreasonable; beyond seven business days is deemed unreasonable. Counting starts on the business day after presentation.
ISP98, UCP 600 and URDG 758 Side by Side
Time to examine or give notice
ISP98
Not unreasonable: 3 business days safe, over 7 unreasonable (Rule 5.01)
UCP 600
Maximum 5 banking days (Arts. 14(b), 16(d))
URDG 758
5 business days (Arts. 20, 24)
Place of presentation closed on the last day
ISP98
Extended to 30 calendar days after it reopens, for any closure (Rule 3.14)
UCP 600
No extension for force majeure closures (Art. 36)
URDG 758
30 calendar days for force majeure (Art. 26)
Expiry on a non-business day
ISP98
Presentation on the next business day is timely (Rule 3.13)
UCP 600
Next banking day (Art. 29(a))
URDG 758
Next business day (Art. 25)
Statement of default or breach
ISP98
Only if the standby requires it
UCP 600
Only if the credit requires it
URDG 758
Required unless excluded (Art. 15)
Designed for
ISP98
Standbys
UCP 600
Commercial credits; standbys to the extent applicable
URDG 758
Demand guarantees and counter-guarantees
| Point | ISP98 | UCP 600 | URDG 758 |
|---|---|---|---|
| Time to examine or give notice | Not unreasonable: 3 business days safe, over 7 unreasonable (Rule 5.01) | Maximum 5 banking days (Arts. 14(b), 16(d)) | 5 business days (Arts. 20, 24) |
| Place of presentation closed on the last day | Extended to 30 calendar days after it reopens, for any closure (Rule 3.14) | No extension for force majeure closures (Art. 36) | 30 calendar days for force majeure (Art. 26) |
| Expiry on a non-business day | Presentation on the next business day is timely (Rule 3.13) | Next banking day (Art. 29(a)) | Next business day (Art. 25) |
| Statement of default or breach | Only if the standby requires it | Only if the credit requires it | Required unless excluded (Art. 15) |
| Designed for | Standbys | Commercial credits; standbys to the extent applicable | Demand guarantees and counter-guarantees |
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Case: A Standby for an Importer's Open-Account Purchases
A Chennai electronics importer buys components on 90-day open account from a Singapore supplier. The supplier asks for security, and the importer arranges a financial standby from its bank for USD 500,000 subject to ISP98, payable against a statement reading "The applicant has failed to pay invoice no. ____ due on ____". The importer misses one payment, and the supplier presents a demand with the statement, but misspells one word: "The applicant has failled to pay".
Under Rule 4.09 a spelling error that is apparent when read in context need not match, so the wording complies unless the standby demanded exact or identical wording. The supplier draws only the unpaid invoice amount, which Rule 3.08 allows as a partial drawing. If the issuer finds a real discrepancy, it should send notice within three business days to be safe; a notice after seven business days would be unreasonable, and Rule 5.03 then stops it relying on discrepancies it failed to raise in time.
How the IIBF Exam Tests This
IIBF's syllabus lists standby letters of credit and ISP 98 together. Questions tend to be comparison questions: which rule set gives 30 days after reopening, which one deems three business days reasonable, which publication number belongs to ISP98. The trap is to carry UCP 600's five banking days over to a standby. Under ISP98 there is no fixed maximum, only the three-day safe zone and the seven-day limit.
FAQs
What is the difference between ISP98 and UCP 600 for standby letters of credit?expand_more
UCP 600 was written for commercial credits and applies to standbys only to the extent applicable. ISP98 was written for standbys and adds rules on demands, exact wording, closures and dishonour notices that UCP 600 does not have.
How many days does an issuer have to dishonour under ISP98?expand_more
Notice must be given within a time that is not unreasonable. Under Rule 5.01, three business days is deemed not unreasonable and more than seven business days is deemed unreasonable.
What happens under ISP98 if the bank is closed on the expiry date?expand_more
If the expiry date is not a business day, presentation on the next business day is timely (Rule 3.13). If the place of presentation is closed on the last business day and that prevents presentation, the deadline moves to 30 calendar days after it reopens (Rule 3.14).
What is the ICC publication number of ISP98?expand_more
ISP98 is ICC Publication No. 590. It took effect on 1 January 1999.
Next steps
- Standby Letter of Creditarrow_forward
- URDG 758 Casesarrow_forward
- UCP 600 Casesarrow_forward
- Syllabusarrow_forward
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