FPML-CWG Collateral WG Meeting Minutes

Please find the minutes from the April 14 meeting. Please let me know if any points missed.

Participants

1. Eugene Sirota (Goldman Sachs)

2. Irina Yermakova (ISDA)

3. Jesse Nolan (UBS)

4. Lucio Lida (Black Rock)

5. Lyteck Lynhiavu (Swift)

6. Richard Barton (Algorithmics)

7. Sammy Lee (Globeop)

8. Vivian Wu (Goldman Sachs)

Apologies

1. Marc Gratacos (SWIFT)

2. Anil Panchal (Globeop)

3. Harry McAllister (BNP Paribas)

4. Kaizad Bhathena (Globeop)

5. Tom Brown (Omgeo)

Notes

The meeting continued on the work from the previous week on the MC1 Message. We managed to go through the main components of the Margin Call Details section.

MC1

à We continued to review the MC1 message using the SWIFT Margin Call Request example we had used in the April 7^th meeting

à We were able to complete Margin Details Due To Party A, Requirement Details Due To A and Margin Call Result sections

à The following changes were recommended and comments made by the group

· Confirmed Removal of Independent Amount Convention (row 18) but used the same term to replace what was Initial Margin Offset (row 26). This was agreed to take two parameters Netting or Segregated. This is to represent the treatment of Independent Amount. Netting refers to IA that is applied before the Threshold. Segregated means the IA is treated as a separate requirement.

· Continued the debate of Initial Margin vs. Portfolio Margin terminology. A third suggestion was to call it explicitly VaR Margin. We agreed to note the 3^rd choice and to discuss with the group in the 21^st April call. The suggestion was borne out of the assumption that Portfolio Margin would not be known in the market but VaR would be more explicit.

· Confirmed the removal of Initial Margin Convention (row 23)

· Renamed VariationMarginTermsPartyA to be VariationMarginTerms (row 27)

· Agreed to remove VariationMarginTermsPartyB (rows 39-50)

· Renamed InitialMarginTermsPartyA to InitialMarginTerms (row 51)

· Agreed to remove InitialMarginTermsPartyB (row 59-68)

· Agreed to remove CollateralTreatment (row 67)

· Discussed the breakdown of Collateral to represent Collateral held against Variation Margin and Independent Amount. It was agreed to have separate sections so that segregated Independent Amount collateral could be defined

· A more granular breakdown of collateral was discussed with the suggestion of having PriorAgreedToPartyA or PriorAgreedToPartyB. This would represent the scenario where an undisputed amount has been defined but no collateral movement details to meet the obligation has been communicated. The grouped discussed whether this was a useful breakdown and the general consensus was that this was uncommon and the suggestion was to remove reference.

· The collateral values were split to reference who was holding collateral i.e. A or B and to reflect it could be both at the same time. Therefore HeldByPartyA, HeldByPartyB were confirmed as replacements of TotalCollateral from original MC1 requirements

· InTransitToPartyA, InTransitToPartyB gave a more granular breakdown and more explicit reference than PendingCollateral form original MC1 requirements. This also could reflect scenarios where collateral was in transit (pending) in both directions i.e. substitutions, mis-booking correction etc.

· Discussed RequirementDetailsDueToA. This section would allow you to represent the potential movements that would result from the requirements. These could be Delivers or Returns (recalls) or either Variation Margin and/or Segregated Independent Amount. This was recommended for inclusion although it had no equivalent in the original MC1 requirements

· Discussed MarginCallResult section. This section would relate is related to MarginRequirement and ExpectedCollateral in the original MC1 requirement document. MarginCallTreatment has no equivalent in the original document this is an additional attribute to confirm how the Requirements should be treated. Convenience refers to netting the requirements together i.e. a Variation and Independent Requirement would be netted together. Segregated would identify that the Variation Margin Requirements can be treated independently of the Independent Amount Requirement. This will be important in latter messages in terms of how organisations will communicate requirements. DueToPartyA relates to the net total of all requirements due to party A this is the equivalent of the Margin Requirement in the original MC1 document. The RequestedCollateralType is the equivalent of the ExpectedCollateral the suggestion was to have optional elements that a user could select from in terms of the type of collateral that the party sending the call would prefer to receive from the other party.

· AdditionalInformation had no equivalent in the original MC1 requirement but is suggested as a way to provide extra information related to the margin call request. For example it could cover additional information or clarification of the RequestedCollateralType or something about the calculation itself.

· Sections/concepts not discussed MarginDetailsDueToB, RequirementDetailsDueToB, MarginCallResult:DueToPartyB, and Extension. Can discuss later highest priority is core path of the message i.e. related to the calling party. These sections are related to optionality for greater disclosure of the full calculation including where the calling party is also expecting the other party to call them i.e. segregated IA in other parties favour and vm requirement in calling parties favour.

Action Items

à Group to send examples of margin call notices that could be used to evaluate the suggested message formats (still hoping to receive)

à Send out example of the discussed MC1 message (attached)

à Need to update the descriptions/definitions of each message element (looking for assistance)

à Send out example of the Margin Call Response for review (will come later today)

Notes on ISDA Roadmap for Collateral Management

Please note a new commitment in the April 15 Roadmap for Collateral Management related to Electronic Messaging.

2. Electronic Communication of Margin Calls

The open standard for facilitating standardized electronic communication of margin calls and key collateral processes was published November 2009. The Market Review makes a recommendation (MR-5) to continue the drive towards standardization of format and electronic communication of margin calls in the market; coordinating across market participant firms and vendors who should create fully interoperable solutions that improve market efficiency and reduce systemic risk.

Market Initiative: Continue to work with vendors and the industry to develop fully interoperable standardized electronic communication for margin calls. The G14 Members will start piloting standardized electronic communication for key collateral processes with their chosen vendor(s) or utilities by December 31, 2010 contingent on the availability of a commercially viable solution. Firms will work with vendors to actively promote full interoperability of all solutions

Next Meeting

à The goal is to confirm the MC1 message and start to look at the Margin Call Response (MC3a, b, c, MC5, MC6)

à Wednesday 21^st April 10am ET/3pm BST

Dial in Details:

US Dial-in: 888-481-3032

UK Toll Free: 0800 904 7961

International Dial-in: 617-801-9600

Passcode: 8682747

Attachments

à Working spreadsheet based on feedback to date for MC1 message.

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FPML-CWG Collateral WG Meeting Minutes - Apr 14, 2010