FPML-CWG Collateral WG Meeting Minutes - October 27, 2010

[Lyteck Lynhiavu <LLynhiavu@xxxxxxxx>]

Please find the minutes for the October 27 meeting. Let me know if I missed anything. Thanks, Lyteck

 

Participants

1.      Jesse Nolan (UBS)

2.      Sammy Lee (GlobeOp)

3.      Harry McAllister (BNPP)

4.      Irina Yermakova (ISDA)

5.      Marc Gratacos (ISDA)

6.      Lyteck Lynhiavu (ISDA)

7.      Richard Barton (Algorithmics)

 

Apologies:

1.      Joe Novellino (DB)

 

Summary

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

·        Technical Review by the FpML Coordination Committee is taking place. The margin call and substitution messages were reviewed October 25 with overall positive feedback and no major changes. A second review session will take place November 1 covering the Interest messages.

·        Business validation: validation rules for the collateral messages will be developed and added to the online documentation for FpML 5.1 ('validation architecture' section). Firms can choose to implement validation rules in their systems. Business validation ensures the data captured in the messages make business sense.

à We'll develop business validation rules over the coming weeks and present to the group.

 

·        AOB - Harry had feedback on the Interest Notification (IN1) message and the structure of the interest calculation details. Some of the feedback was implemented (see attached zip and example of the new structure below). Further group discussion is needed for some items.

o   interestPeriod was moved inside interestRequirement

o   the treatment for a singleDirection was made more consistent with the net/gross treatment within the bothDirections (singleDirection now contains a similar paymentDetails)

o   singleDirection/treatment > singleDirection/singleTreatment

o   singleDirection / bothDirections: suggestion to use more unidirectional / bidirectional (TBD)

o   interestRate > observedRate

o   corrected how the observedRate, spread, effectiveRate where represented in the examples

o   withholdingTax: Harry suggests relocating at a higher level and possibly include jurisdiction information. à Richard will consult with Joe who may have requested this additional field.

o   interestStatement now based on a notificationMessage (previously correctableRequestMessage)

o   principalAmount vs effectivePrincipalAmount: could be clarified further

o   paymentDetails (within singleTreatment, grossTreatment, netTreatment) are now using FpML paymentDetails.model group

o   movement (within dailyInterestCalculation) is now using FpML paymentDetails.model group

-      Harry had more feedback but we ran out of time...

 

 

<interestRequirement>
               <interestPeriod>
                              <startDate>2010-08-01Z</startDate>
                              <endDate>2010-08-31Z</endDate>
               </interestPeriod>
               <variationMargin>
                              <singleDirection><!-- typical scenario: only one party will need to make an interest payment. -->
                                             <singleTreatment>
                                                            <paymentDetails>
                                                                           <valueDate>2010-09-02Z</valueDate>
                                                                           <method>PhysicalSettlement</method>
                                                                           <payerPartyReference href="party1"/>
                                                                           <receiverPartyReference href="party2"/>
                                                                           <paymentAmount>
                                                                                          <currency>USD</currency>
                                                                                          <amount>1371.55</amount>
                                                                           </paymentAmount>
                                                            </paymentDetails>
                                             </singleTreatment>
                                             <interestAccrued>
                                                            <deliveringPartyReference href="party1"/>
                                                            <receivingPartyReference href="party2"/>
                                                            <interest>
                                                                           <currency>USD</currency>
                                                                           <amount>1371.55</amount>
                                                            </interest>
                                                            <calculationTerms>
                                                                           <calculationType>Compounding</calculationType>
                                                                           <index>EUR-EONIA-Swap-Index</index>
                                                                           <spread>-0.0030</spread><!-- 30 basis points -->
                                                                           <dayCountFraction>ACT/360</dayCountFraction>
                                                                           <withholdingTax>true</withholdingTax><!-- 10/27: Harry suggests relocating  (higher) + include jurisdiction -->
                                                            </calculationTerms>
                                                            <interestCalculationDetails><!-- optional interest calculations: -->
                                                                           <dailyInterestCalculation><!-- calculations for 1st day of period -->
                                                                                          <calculationDate>2010-08-01Z</calculationDate>
                                                                                          <principalAmount>600000</principalAmount>
                                                                                          <movement><!-- aggregated settled collateral movement for the calculation date -->
                                                                                                         <payerPartyReference href="party1"/>
                                                                                                         <receiverPartyReference href="party2"/>
                                                                                                         <paymentAmount>
                                                                                                                        <currency>USD</currency>
                                                                                                                        <amount>100000</amount>
                                                                                                         </paymentAmount>
                                                                                          </movement>
                                                                                          <effectivePrincipalAmount>600000</effectivePrincipalAmount>
                                                                                          <observedRate>0.043</observedRate>
                                                                                          <spread>-0.0030</spread>
                                                                                          <effectiveRate>0.040</effectiveRate><!-- = observed rate adjusted with spread -->
                                                                                          <accruedInterest>666.66</accruedInterest><!-- (0.40 * 600,000) / 360  -->
                                                                                          <cumulativeInterestAmount>666.66</cumulativeInterestAmount>
                                                                           </dailyInterestCalculation>
                                                                           <dailyInterestCalculation>
                                                                                          <!-- 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 -->
                                                                                                         <payerPartyReference href="party1"/>
                                                                                                         <receiverPartyReference href="party2"/>
                                                                                                         <paymentAmount>
                                                                                                                        <currency>USD</currency>
                                                                                                                        <amount>50000</amount>
                                                                                                         </paymentAmount>
                                                                                          </movement>
                                                                                          <effectivePrincipalAmount>650666.66</effectivePrincipalAmount>

                                                                                          <!-- end of day balance (principalAmount) + previous day's cumulativeInterestAmount = $650000 + $666.66 -->
                                                                                          <observedRate>0.042</observedRate>
                                                                                          <spread>-0.0030</spread><!-- 30 basis points -->
                                                                                          <effectiveRate>0.039</effectiveRate><!-- = observed rate adjusted with spread -->
                                                                                          <accruedInterest>704.89</accruedInterest><!-- (0.39 * 650,666.66) / 360  -->
                                                                                          <cumulativeInterestAmount>1371.55</cumulativeInterestAmount><!-- = day1 accrued interest ($666.66) + day 2 ($704.89) -->
                                                                           </dailyInterestCalculation>
                                                                           <!-- calculations for subsequent days 3, 4, ..., n would go here (not shown) -->
                                                            </interestCalculationDetails>
                                             </interestAccrued>
                              </singleDirection>

 

Attached are the updated schema, examples (attached zip / also for download ) and documentation for download (word doc) (4MB) for further review.  

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Attachment: FpML_collateral_xml_20101028_51wd3.zip
Description: FpML_collateral_xml_20101028_51wd3.zip