Hi
Sorry to all for not making the
call yesterday. Please find attached some thoughts on Dispute Reasons, Margin
Call Response and Collateral Proposals.
The following suggestions are an
example of how we could potentially represent the Margin Call Response and
Collateral Proposal which would form the reply to the Margin Call issued via
MC1. These messages would potentially replace MC3a,b,c,MC5,MC6. Apologies for
not annotating this in FpML but hopefully this is ok to get an idea of the
suggestion.
The premise of this suggestion
is as follows:
·
The messages should
support the scenario where an organisation knows what they can agree to but not
the exact collateral that will be sent. Therefore the messages support sending
the agreed details independently of the collateral details.
·
When utilizing a messaging
infrastructure if the messages are split then the scenario where the collateral
proposal is known at the same time as the agreed amount then the rendering
system will support this so it is ok to be separate
·
The Margin Call Response
should handle the situation where Initial Margin and Variation Margin is
segregated. The respondent can agree to the IM, VM separately or in the same
message. For scenarios where there is no segregation I used the term
convenience response amount to relate that situation where the IM and VM is not
segregated.
·
The messages should not
restrict the amount of information the responding party are able and willing to
disclose about why they are agreeing to what they are agreeing. Therefore I suggest
a section “calculation details” where they can detail their view of
the margin calculation (you can even show that you thought they could have
called you for more if you would like). I appreciate that typically the amount
of information that is disclosed is limited i.e. ISDA guidelines assumes at
most mtm, collateral and upfront. However in the case of a dispute you are eventually
going to ask for this information anyway so to expedite the mitigation of risk
why not support disclosure. For example the ISDA Guideline does not require
you to disclose Threshold. So if I dispute and send a dispute reason Threshold.
Then you are going to be reverting back to the phone/email to ask what is the
Threshold. If I tell you in my response what the Threshold is it saves an out
of collateral system communication.
·
If the messages
support disclosure of calculation details then the need for dispute reason is
lessened because you are presented with the information that enables you (or
your collateral system) to see why the responding party can only agree to the
amount they are agreeing to. It also supports side by side comparison of
calculation details.
·
When separating the
Collateral Proposal you can then handle the scenario where the calling party
rejects a collateral proposal with the same message type and avoids having to
have another message for handling rejected collateral proposals.
Other things considered about
this message
·
It assumes that the
party that receives the Margin Call Response will look at the Undisputed Amount
details and compare that to the amount that they called that party for. If the
amount is 0 then the responder disputes, if the amount is equal to the call
amount the responder agreed, if the amount is not 0 they partially agreed.
·
There is no explicit
element that says dispute, agreed, partially agreed
·
There is no minimum
amount of information expected when you respond (there is no limitation either)
·
There is no explicit
element for dispute reason (however the information you need apart from not a
valid call day is available in the response details)
Dispute Reasons
I saw the various notes on
Dispute Reasons and put them in a tab of the attached spreadsheet. I think
when thinking about this that we need to bear in mind firstly what information
we need to be able to use that reason and secondly whether we would have that
information at the time of receiving the margin call request. From the table
you will see those reasons that are known from the Margin Call details and at
the time of the call and those that would require a Portfolio Statement or
Collateral Statement and a reconciliation to have taken place. Therefore I think
if we are to use a Dispute Reason we probably need to limit ourselves to those
that are marked as in both the Call Details and At Call Time classifications.
Regards
Richard
From:
owner-colwg@xxxxxxxx [mailto:owner-colwg@xxxxxxxx] On Behalf Of Lyteck
Lynhiavu
Sent: Wednesday, February 24, 2010 3:44 PM
To: colwg@xxxxxxxx
Subject: FPML-CWG Collateral WG Meeting Minutes - February 24, 2010
Please find the minutes for today’s call. Thank you
for your participation.
Participants
-
Kaizad Bhathena (GlobeOp)
-
Sammy Lee (GlobeOp)
-
Anil Panchal (GlobeOp)
-
Vivian Wu (Goldman Sachs)
-
Charles Miller (JPMorgan)
-
Harry McAllister (BNP Paribas)
-
Wayne Forsythe (State Street)
-
Tom Brown (OMGEO)
-
Lucio Iida (Blackrock)b
-
Marc Gratacos (ISDA)
-
Irina Yermakova (ISDA)
-
Lyteck Lynhiavu (ISDA)
Apologies
-
Vinod Jain (Headstrong)
-
Richard Barton (algorithmics)
Notes
-
MC5
/ MC6 (dispute)
·
The group
agreed in principle on the need of a mechanism in the message that will convey
why a margin call is being disputed and what is disputed, but the group
couldn’t agree on which mechanism(s)
1. use
a free-form comment field and/or
2. use
high-level reason code(s) and/or
3. return
disputed field values (e.g., TotalMTM, as outlined in the business specs pdf
p.24)
The group ultimately agreed to
allow a combination of all of the above for maximum flexibility (the free-form
comments field and reason codes will be optional)
·
The group discussed the list of high-level
reason codes that Peter/Wayne/Harry circulated à
Action item 2
-
What
happens after MC12/MC13 (request portfolio)? Closing the process loop
·
Kaizad raised the concern that after the
MC12/MC13 exchange, there is no provision in the PDF specs to loop the result
of the portfolio reconciliation back to the margin call <please correct if
needed>
·
The Dispute Resolution Process is outside the
scope of the collateral messages, but from an implementation perspective, we
may need a new message or fields (TBD) to tie the result back to the original
margin call request à Action item 3
1. The
FpML <correlationId> mechanism will be used to correlate related messages
2. One
suggestion was to simply rescind the original call (MC2) and resend a new
margin call (MC1)
3. It
was also suggested that perhaps MC12/MC13 should be integrated with MC5/MC6,
earlier in the process. We should be careful however, to design messages that
can be used by service providers & matching services
Action
Items
1.
à Richard to
circulate an example of margin call response that could model acceptance/full
dispute/partial dispute (MC3/MC5/MC6) with a single message (deferred from 2/17 meeting)
2.
à ISDA will
consolidate the list of generic reason codes based on everyone’s input
3.
à Everyone
to think how the result of the dispute resolution process can be tied back to
the margin call, if at all
Next
Meeting – Wednesday March 3, 2010 @
10am NY / 3pm London time
Draft Agenda:
-
Review
margin call response example from Richard (à
action item 1)
-
MC5/MC6
Dispute Reasons: review consolidated list (à
action item 2)
-
Closing
the process loop (à action item 3)
-
Continue
reviewing data fields for MC7..MC13
-
AOB
Dial-in details and materials will follow early next
week.
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Attachment:
MarginCallResponse.xls
Description: MarginCallResponse.xls