What does Modified Following mean?
Modified Following is a business day convention whereby payment days that fall on a holiday or a Saturday or a Sunday roll forward to the next target business day.
Futures Knowledge Explains Modified Following
Modified Following is a contractual feature in an exchange involving the implied automatic modification of the payment date or delivery date if that falls on a holiday. It is rolled forward to next business day. However if that forward day falls in the next calendar month, the payment day rolls backward to the immediately preceding target business day. For example if the payment day is Saturday, 31 October 2015. The next business day is Monday, 2 November, but this falls in next month. So the modified following day will be Friday, 30 October, a day proceeding to the original payment day.
The modified following convention smoothens the exchange process.