FPML-CWG FW: FpML Collateral WG

This is good stuff... I think it could be shared directly with the group (going forward you may cc/reply to colwg@xxxxxxxx). Thanks Kaizad/Richard

From: richard.barton@xxxxxxxxxxxxxxxx [mailto:richard.barton@xxxxxxxxxxxxxxxx]
Sent: Wednesday, February 17, 2010 2:54 AM
To: kbhathen@xxxxxxxxxxx; Lyteck Lynhiavu
Cc: apanchal@xxxxxxxxxxx; SLee@xxxxxxxxxxx
Subject: RE: FpML Collateral WG - MC1 discussion

Hi Kaizad

Not sure if this is supposed to be the way to reply to these messages but I just wanted to share my experience related to this. We have experience of calculations similar to what you have described below. In our system we would refer to the Upfront Margin in your scenario as Additional Margin (an amount applied as an add-on to Exposure usually intended to cover a possible increase in Exposure before the next Valuation Date). We would usually differentiate this from what we would refer to as Lock-up Margin (An initial margin amount payable by one party to the other party regardless of the Exposure Amount). We see both of these in the market. Perhaps we could look to make the definition of the term Upfront more granular and perhaps look to break it down so as to differentiate how it is treated within calculations.

Here is an example of a margin call rendering with Additional Margin

Here is an example of a margin call rendering with Lock-up Margin note how the Lock-up Margin is separated from the Exposure and is not subject to Threshold adjustment. This is also an example of a segregated call where Lock-up Margin and Variation Margin is held separately and can be processed independently once the initial call is made.

On a further note related to use of negatives this is something that can be handled in the rendering engine of the margin call and allows different organisations to render the margin call request in whatever way makes most sense to their users. If you prefer negative representation for Pledged or Pending movements to the other party or for Exposures in the other parties favour this is your choice. The message itself from a FpML perspective tries to be agnostic to this preference

Best Regards

Richard

From: Kaizad Bhathena [mailto:kbhathen@xxxxxxxxxxx]
Sent: Tuesday, February 16, 2010 9:26 AM
To: Lyteck Lynhiavu
Cc: Anil Panchal; Sammy Lee
Subject: RE: FpML Collateral WG - MC1 discussion

Hi Lyteck,

Further to your correspondence, please be advised that from our current experience, we have seen a change in the manner the Threshold gets reported on the margin call. Threshold is applied on the sum total of “Total MTM and Total Upfront Fees”.

Also on your MC1 schema the name and IDs of the concern party is mentioned at the very end. Ideally this should be on the top of any generated calls. The reason behind is that when a person is looking at the margin issuance call, he/she would like to know which are the 2 parties associated to the said call.

We would also need to look at how to accommodate the “negative number” in the margin call issuance schema

Below is the order in which the elements could be grouped.

	Where Threshold is considered on sum total of upfront fee and MTM	Example
1	Valuation Date	10-Feb-2010
2	Base Currency	USD
3	Total Exposure (Total MTM)	5,000,000.00
4	Upfront Margin (Initial Margin)	1,000,000.00
5	Threshold	1,000,000.00

6	Collateral Held / (Pledged)	2,000,000.00
7	Collateral Pending	(1,000,000.00)
8	Minimum Transfer Amount	250,000.00
9	Rounding Amount	10,000.00
10	Margin Requirement	4,000,000.00
11	Currency of the call	USD
12	Type	Cash

Thanks

Kaizad Bhathena

Associate Director - OTC

Globeop Financial Services

801/802, 8th Floor, Interface Bldg., No. 11,

Malad (W), Mumbai 400 064, India.

Phone : (91-22) - 40948636

www.globeop.com

From: Lyteck Lynhiavu [mailto:LLynhiavu@xxxxxxxx]
Sent: Friday, February 12, 2010 8:25 PM
To: Kaizad Bhathena
Subject: RE: FpML Collateral WG - MC1 discussion

Kaizad:

Based on the last few discussions, the group seems to agree that the MC1 content model would be easier to use/understand if some data elements were grouped or reordered.

Would you be willing to propose a grouping (e.g., new XML containers that wrap a few related elements) and a better order for the elements?

If you are interested, we could review enhancement proposals at the next meeting. Let me know.

Thanks,

Lyteck

ISDA

From: Lyteck Lynhiavu
Sent: Thursday, February 04, 2010 11:56 AM
To: colwg@xxxxxxxx
Subject: FpML Collateral WG - MC1 discussion

We received some good feedback below from Kaizad regarding the MC1 message (Issuance of Margin Call).

I encourage everyone to comment by email by replying to this thread (colwg@xxxxxxxx). Based on your feedback we can take another crack at modeling the schema and developing examples for next week.

1) Can other firms confirm the scenarios or can think of other scenarios?

2) & 3) Based on the MC1 data elements (listed ISDA’s electronic-messaging.pdf p.16-17) can you identify which fields we should consider making optional

4) There was general agreement from the group on this approach (and that portfolio reconciliation is out of scope). We’ll see how we can reference existing portfolio messages (supported in FpML) in the margin call message. The concern some firms had was that if the portfolio information was not part of the initial margin call message, it would result in an unnecessary number of dispute messages (requesting clarification on the portfolio).

Thanks, Lyteck

From: Kaizad Bhathena [mailto:kbhathen@xxxxxxxxxxx]
Sent: Thursday, February 04, 2010 9:11 AM
To: Lyteck Lynhiavu
Cc: Sammy Lee; Anil Panchal
Subject: RE: FpML Collateral WG - MC1 discussion

Hi,

Please be advised that since I do not have the group ID I am replying to you. If required you could have this added on the minutes of the said call.

On the yesterday discussion of the FpML schema, please find below the points which may require some feedback

1) Currently the “Request Margin Call” message (MC1) schema displays the combine margin call which could be raised by the concern parties. However from our experience there may be a possibility where separate calls are raised by the concern parties (One on the upfront Margin and the other on the MTM). These calls have separate collateral amounts placed irrespectively. In these cases we may require a new schema to handle such calls.

Below table shows 3 scenarios and how the margin requirement could differ:

	Example of collateral Call (as per schema)	Example of collateral Call (only on Upfront Margin)	Example of collateral Call (only on MTM)
MTM	2,000,000.00		2,000,000.00
Upfront Margin	500,000.00	500,000.00
Total collateral held	1,000,000.00	1,000,000.00	1,000,000.00
Margin Requirement	1,500,000.00	(500,000.00)	1,000,000.00

2) We would also require verifying if all the fields mentioned on the schema is “mandatory” if so, we may require changing the same. The reason being in some of the cases there may not be any Threshold amounts or MTA or Rounding available and if we keep those fields mandatory it might cause some issue.

3) We may also look at re-arranging the order of the fields for example keeping the “Margin Requirement” at the end of the message etc.

4) As discussed this schema only provide the summarized margin call. It does not have functionality of sending the portfolio associated to the call. We need to look at how to provide linkage between the schema and the portfolio (if sent separately).

Many thanks

Kaizad Bhathena

Associate Director - OTC

Globeop Financial Services

801/802, 8th Floor, Interface Bldg., No. 11,

Malad (W), Mumbai 400 064, India.

Phone : (91-22) - 40948636

www.globeop.com

From: Lyteck Lynhiavu
Sent: Wednesday, February 03, 2010 1:01 PM
To: 'kbathen@xxxxxxxxxxx'
Subject: FpML Collateral WG - MC1 discussion

Kaizad:

Thanks for your active participation in the collateral discussions.

As discussed, could you send me a summary of the points you raised? I can summarize them in the minutes.

You can also send to the group if you want… that may generate good discussion from others via the mailing list.

Best,

Lyteck Lynhiavu

ISDA

360 Madison Ave, 16^th Floor

New York, NY 10017

212-901-6010

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FPML-CWG FW: FpML Collateral WG - MC1 discussion