Please find the minutes from the March 10 meeting. Please
let me know if any points missed.
Participants
-
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)
Special Guests
-
Emily Gu (UBS)
-
James Duff (UBS)
Apologies
-
None
Notes
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
Chairperson
Role
-
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
Action
Items
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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