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FPML-CWG RE: Collateral WG Meeting Minutes - October 20, 2010



Please find the minutes for the October 20 meeting.

 

Below is an example of the revised interest calculation details, based on today’s feedback. The example shows compounding calculations for day 1 and day 2 to illustrate how the structures can be used. Feel free to send feedback/comments via the mailing list.

 

 

<interestAccrued>
               
<deliveringPartyReference href="party1"/>
               
<receivingPartyReference href="party2"/>
               
<interest>
                               
<currency>USD</currency>
                               
<amount>1371.55</amount><!-- = the cumulative interest amount at the end of the calculation period-->
               
</interest>
               
<calculationTerms>
                               
<calculationType>Compounding</calculationType>
                               
<index>EUR-EONIA-Swap-Index</index>
                               
<spread>0.0030</spread>
                               
<dayCountFraction>ACT/360</dayCountFraction>
                               
<withholdingTax>true</withholdingTax>
               
</calculationTerms>
               
<interestCalculationDetails><!-- optional interest calculations: -->    
                               
<interestCalculation><!-- calculations for 1st day of period -->
                                               
<calculationDate>2010-08-01Z</calculationDate>
                                               
<principalAmount>600000</principalAmount><!-- current day's principal amount = previous day's principal amount +/- movement amount for today -->
                                               
<movement><!-- aggregated settled collateral movement for the calculation date -->
                                                               
<deliveringPartyReference href="party2"/>
                                                               
<receivingPartyReference href="party1"/>
                                                               
<amount>100000</amount>
                                               
</movement>
                                               
<effectivePrincipalAmount>600000</effectivePrincipalAmount>
                                               
<interestRate>0.43</interestRate>
                                               
<spread>0.03</spread>
                                               
<effectiveRate>0.40</effectiveRate>
                                               
<accruedInterest>666.66</accruedInterest> <!-- = (0.40 * 600,000) / 360  -->
                                               
<cumulativeInterestAmount>666.66</cumulativeInterestAmount>
                               
</interestCalculation>
                               
<interestCalculation><!-- calculations for 2nd day of period -->
                                               
<calculationDate>2010-08-02Z</calculationDate>
                                               
<principalAmount>650000</principalAmount> <!-- current day's principal amount = previous day's principal amount +/- movement amount for today -->
                                               
<movement><!-- aggregated settled collateral movement for the calculation date -->
                                                               
<deliveringPartyReference href="party1"/>
                                                               
<receivingPartyReference href="party2"/>
                                                               
<amount>50000</amount>
                                               
</movement>
                                               
<effectivePrincipalAmount>650666.66</effectivePrincipalAmount> <!-- end of day balance (principalAmount) + previous day's cumulativeInterestAmount = $700000 + $666.66 -->
                                               
<interestRate>0.42</interestRate>
                                               
<spread>0.03</spread>
                                               
<effectiveRate>0.39</effectiveRate>
                                               
<accruedInterest>704.89</accruedInterest> <!-- (0.39 * 650,666.66) / 360  -->
                                               
<cumulativeInterestAmount>1371.55</cumulativeInterestAmount> <!-- = day1 accrued interest ($666.66) + day 2 accrued interest ($704.89) -->
                               
</interestCalculation>
                               
<!-- interest calculations for day 3, 4, …, n  would go here -->
               
</interestCalculationDetails>
</interestAccrued>

 

 

Participants

1.       Jesse Nolan (UBS)

2.       Alex Ravenel (Deloitte & Touche)

3.       Simone Milani-Foglia (LCH Clearnet)

4.       Kaizad Bhathena (GlobeOp)

5.       Evelyne Piron (SWIFT)

6.       Harry McAllister (BNPP)

7.       Mohamed Yazid (La Banque Postale)

8.       Irina Yermakova (ISDA)

9.       Marc Gratacos (ISDA)

10.   Lyteck Lynhiavu (ISDA)

11.   Richard Barton (Algorithmics)

 

Apologies:

1.       Tom Brown (OMGEO)

 

 

Summary

·         Deliverables: the collateral substitution and interest messages will be published in FpML 5.1 Working Draft 3 planned for publication November 15. The messages and schema need to be reviewed prior to publication.

·         Technical Review by the FpML Coordination Committee is scheduled Monday October 25 and Monday November 1. Richard and Lyteck will present the work during these review sessions.

·         Documentation: The group reviewed the draft documentation for the Substitution and Interest processes for publication in FpML 5.1 WD3. Further design changes were discussed for the Interest Notification (IN1) message within calculationTerms and interestCalculationDetails

o   dayCountConvention >  dayCountFraction

o   basisPointSpread > spread (and move after <index>) (express as 0.003, not 30)

o   interestCalculationDetails > interestCalculation (TBD)

§  notionalAmount > principalAmount

§  aggregatedInterestAmount > cumulativeInterestAmount

§  need to add structure around the movement amount and the direction. Also we need to clarify the relationship to the principalAmount (e.g., start of day vs end of day)

à Richard & Lyteck will update the schema and examples and redistribute to the group. The same set of examples will be used for the upcoming technical review.

 

Let me know if I missed anything.

 

Thanks, Richard

 


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