UCP 600-Article 1 and 2 Explanations :

Article -1

Application of UCP 

The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 ("UCP") are rules that apply to any documentary credit ("credit") (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless expressly modified or excluded by the credit.

Explanation: UCP 600 is a set of rules issued by ICC for documentary credit practitioner implemented from dated July 01, 2007, Above UCP article number one says that these rules to be only applicable to the particular letter of credit or Standby Letter of Credit, if the field (M) 40E expressly states subject to UCP 600 or similar words.

These rules are binding all the parties (issuing bank, beneficiary and confirming bank if any) unless field 47a of LC states to exclude or modify accordingly.

Notes : UCP 600 helps importers and exporters to facilitate trade by categorisation of obligation (presentation of complied documents and payment upon complied presentation) through letter of credit as method of payment, a terms and condition of the LC override the UCP and ISBP, wherein, local law supersedes the LC terms as well as UCP and ISBP.

Article -2

Definitions

Explanations:

Article 2 of UCP help us to identify the meaning of the particular involved parties, (parties refer here from involved entity)

Advising Bank : Basically, nominated in field 41a of LC, their work is just to the authentication and completeness (field 27) of the LC, however, being a good bank and to retain the business advising banks check the workability as well, second advising bank may receives the letter of credit from advising bank and that also not necessary to be nominated in field 41a of letter of credit, we can discuss more about advising bank and nominated bank through further articles.

Applicant: Customer of the issuing bank who requested the LC Issuance, and becomes applicant after issuance.

Banking Day : When a bank is opened to perform trade finance business. 

Beneficiary : Means the party in whose favour a credit is issued.

Complying Presentation : Referring to Documents which are presented as per LC Terms, UCP 600 and ISBP 745.

Confirmation : Separate undertaking of another bank to cover the credit risk of issuing bank for beneficiary who honours or negotiate a complying presentation.

Confirming Bank: Bank that adds its confirmation to a credit upon the issuing bank's authorization or request.

Credit : Letter of Credit, an undertaking issued by issuing bank to honour the complying presentation.

Honour Means:

Explanation : Honour means to make the payment by issuing bank to beneficiary upon complying presentation if any other bank or parties defaults, confirming banks also issue the same undertaking which cover issuing bank credit risk as well, in normal situation, a confirming bank will be situated in beneficiary’s  country and more reliable and convenient to beneficiary, however, even if confirming banks fails to pay, final liability will come to issuing bank to make the payment.

Below mentioned in UCP 600 as per particular availability in Letter of credit:

a. to pay at sight if the credit is available by sight payment.

b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment.

c. to accept a bill of exchange ("draft") drawn by the beneficiary and pay at maturity if the credit is available by acceptance.

Issuing Bank : A Bank who issues the letter of credit on request of applicant or their own behalf.

Negotiation : Discounting word is more famous in today’s Trade World instead of Negotiation which is wrong interpretation as discounting is used other the letter of credit's advance payments on the basis of draft or documents, negotiation is to make the payment to beneficiary on or before maturity apart from issuing bank, it may be based on credit complied document or draft with complied documents, charges will be deducted on the basis of letter of credit terms, whether from applicant’s or beneficiary’s account.

Nominated Bank Field 41a of the Letter of credit, usually it becomes advising bank and beneficiary’s bank for negotiations.

Presentation: Referring to documents called in Letter of credit including shipment documents, which are being presented as per letter of credit terms, issuing bank, confirming bank or nominated banks counter, however, finally it has to come to issuing bank thru which goes to applicant for taking the delivery of the goods, if no direct consigned to applicant, called in letter of credit.

Presenter : The entity who presents the document, may be beneficiary, nominated bank, confirming bank.