Please find the minutes from the March 10 meeting. Please let me know if any points missed.
- Lucio Iida (Blackrock)
- Harry McAllister (BNP Paribas)
- Ronak Shah (Citadel)
- John Straley (DTCC)
- Anil Panchal (GlobeOp)
- Kaizad Bhathena (GlobeOp)
- Sammy Lee (GlobeOp)
- Charles Miller (JPMorgan)
- Tom Brown (OMGEO)
- Peter Walsh (State Street)
- Wayne Forsythe (State Street)
- Nicole Jolliffe (Swift)
- Marc Gratacos (ISDA)
- Irina Yermakova (ISDA)
- Lyteck Lynhiavu (ISDA)
- Richard Barton (Algorithmics)
- Emily Gu (UBS)
- James Duff (UBS)
Commitment Letter Update
- James Duff and Emily Gu gave an update on the latest documents on the Collateral Market Review and Independent Amount White Paper.
- Emily explained how the IA document was in two parts; the first was educational, providing definitions and discussion on IA from an operational and legal perspective. The second part provides a definition of the different holding structures for IA which includes Direct Dealer through to Tri-Party. On Page 33 of the document there are a series of recommendations. We discussed the use of the terminology around the use of IA with the various terms we have discussed in the group around Independent Amounts, Initial Margins, Upfront Margin, Lock up Margin and Additional Margin. We noted how the ISDA Message Guidelines had used Upfront Margin for example.
- James gave an update on the Market Review document. This was a process that had started at the end of 2009 with aggressive timelines for completion by end of Feb 2009. This covered a review of the current state, identification of systemic risks and recommendations. This review did not just cover Broker/Dealers but all parties involved in Bilateral Agreements. One other question reviewed was why are organisations not collateralizing. The document was also seen as educational as well as advisory. James highlighted a few recommendations from the document. 1.) Covered the fact that parties involved in the bilateral OTC derivatives market should have the ability select from a variety of credit risk mitigation techniques 2.) Relates to Enforceability of Netting and James pointed out how this was aimed at all including legislators and regulators. 5.) Was noted as being particular relevant to the FpML group as it included the continued drive towards standardization of format and electronic communication of margin calls. 12.) related to the IA white paper and the recommendation that parties should continue to be able to hold collateral to cover VM free of any segregation requirement. There were questions about whether SIFMA and other product areas such as Repo had been involved in the review. James confirmed SIFMA had been involved but the review was more OTC than Repo focused. Also a new roadmap including outcomes of the review would be released April 15th
- Lyteck confirmed that Richard Barton had agreed to take on the Chairperson role from this meeting onwards
Margin Call Response Proposal (MC3/5/6)
- Richard walked the group through the examples (sent 3/10) that showed how the proposal (sent 2/25) could be implemented to reduce the number of messages and simplify the process. It was agreed to change agreed to Convenience Response Amount. We discussed the need for the use of the Convenience and Segregation definitions and in particular whether organisations would send individual calls for IM and VM or combined calls where IM and VM could be segregated. It was noted that although in the past it would have been commonplace for individual calls, and hence messages, to be sent it was seen as an emerging market practice to be able to support an organisation being able to send a single reply covering both IM and VM segregated details. The message work will take the prudent approach to try and support this.
- Discussed whether there was a need to specify the Segregated Response Type as the existence of the values for IM or VM could be sufficient. It was agreed to keep so that validation rules could be used to ensure that the appropriate responses were provided to avoid ambiguity i.e. if Both then IM and VM should be provided if IM then IM should be provided and VM not provided etc.
- It was discussed whether or not the Calculation Details were required to be so detailed. Richard explained that the purpose was to allow organisations to disclose as much information as they were willing to provide about their calculation in helping to explain the response amounts. This was seen as optional and the examples showed how this could be populated to support the ISDA guidelines for Full Agreement, Partial Agreement and Full Dispute. It was also discussed how this would support greater disclosure for those interested in identify as much information as possible as a way to mitigate risks.
- A question was raised about how the message would be presented in the scenario where both parties are calling each other one for VM and one for IM or even the train wreck scenario where both call for VM or IM on the other party. The examples showed how the calculation details can expose in the response just the details that are relevant to the call received or also include the details of the other call the responding party also made. There was some concern if this would cause confusion.
- We discussed how the proposed message only contained a general comment for additional information that could be used provide details of why a call was not agreed to. It was described that with the fuller disclosure of calculation details the need to specify dispute reasons related to calculation amounts was lessened as this could be a system and not user responsibility. The general comment could therefore cover things such as it not being a valid calculation day for example that is not so easy to model in the calculation details response section.
- The excel examples were seen as a useful tool for evaluating and testing the validity of the messages but it was agreed that the next focus should be towards reviewing the data elements in more detail. Therefore Richard will forward a model of the recommended message structure for review in the 3/17 meeting à Action item # 1
1. à Richard to send Margin Call Response Data Elements proposal for MC3/MC5/MC6
Next Meeting – Wednesday March 17, 2010 @ 10am NY / 2pm London time. Note the time change in London/Europe for the next two weeks due to the clocks changing in the US.
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