FPML-CWG Collateral WG Meeting Minutes - November 3, 2010

[Lyteck Lynhiavu <LLynhiavu@xxxxxxxx>]

Please find the minutes for the November 3 meeting. Let me know if I missed anything. Thanks, Lyteck

 

Participants

1.       Tom Brown (OMGEO)

2.       Joe Novellino (DB)

3.       Alex Ravenel (Deloitte & Touche)

4.       Nishith Bhatt (GlobeOp)

5.       Anil Panchal (GlobeOp)

6.       Sammy Lee (GlobeOp)

7.       Harry McAllister (BNPP)

8.       Irina Yermakova (ISDA)

9.       Lyteck Lynhiavu (ISDA)

10.   Richard Barton (Algorithmics)

 

Apologies:

1.       Jesse Nolan (UBS)

2.       Marc Gratacos (ISDA)

 

Summary

·         Deliverables: the collateral substitution and interest messages will be published in FpML 5.1 Working Draft 3 planned for publication November 15. The updated schema and examples that are attached are likely to be those that will be published in FpML 5.1 WD3 (or slight variation of them). For your review and testing.

 

·         Interest Notification (IN1) The group discussed further refinement to the structure of the interest calculation details, and the modeling of tax withholding.

o   Daily interest calculations – Harry submitted a proposal to refactor the DailyInterestCalculation type to enforce relationships between components (including renaming some elements for clarity & consistency). The much needed refactoring was welcomed and adopted by the group. Thank you Harry. (see Harry’s email 11/03 “DailyInterestCalculation: proposal”)

o   Tax withholding – The group created optional tax structures at the interestAccrued level to specify the withholdingTax amount and withholdingTaxTerms (including jurisdiction (country code scheme) and rate). The paymentAmount would equal the interest amount minus any tax withheld

o   The party references were renamed from interestNotificationIssuerPartyReference to issuerPartyReference as the message name (requestInterest) already implies it is an interest notification (IN1) message. The change applies to all interest messages.

o   The paymentDetails was refactored to reuse FpML nonNegativePayment type for consistency of payments across the standard. As a result, the valueDate is now renamed to paymentDate. The paymentDate may now be adjusted or not (following business day convention)

 

The refactored model is shown below:

 

<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>
                                                <payerPartyReference href="party1"/>
                                                <receiverPartyReference href="party2"/>
                                                <paymentDate>
                                                                <adjustableDate>
                                                                                <unadjustedDate>2010-09-02Z</unadjustedDate>
                                                                                <dateAdjustments>
                                                                                                <businessDayConvention>NONE</businessDayConvention>
                                                                                </dateAdjustments>
                                                                                <adjustedDate>2010-09-02Z</adjustedDate>
                                                                </adjustableDate>
                                                </paymentDate>
                                                <paymentAmount>
                                                                <currency>USD</currency>
                                                                <amount>1271.55</amount>
                                                </paymentAmount>
                                                <method>PhysicalSettlement</method>
                                </paymentDetails>
                </singleTreatment>
                <interestAccrued>
                                <deliveringPartyReference href="party1"/>
                                <receivingPartyReference href="party2"/>
                                <interest>
                                                <currency>USD</currency>
                                                <amount>1371.55</amount><!-- the cumulative interest amount  -->
                                </interest>
                                <withholdingTax><!-- optional tax withholding information -->
                                                <currency>USD</currency>
                                                <amount>100</amount>
                                </withholdingTax>
                                <withholdingTaxTerms>
                                                <jurisdiction>US</jurisdiction><!-- referencing country code scheme -->
                                                <rate>0.002</rate>
                                </withholdingTaxTerms>
                                <interestCalculationTerms>
                                                <calculationType>Compounding</calculationType>
                                                <index>EUR-EONIA-Swap-Index</index>
                                                <spread>-0.0030</spread><!-- 30 basis points -->
                                                <dayCountFraction>ACT/360</dayCountFraction>
                                </interestCalculationTerms>
                                <interestCalculationDetails><!-- optional interest calculations: -->
                                                <dailyInterestCalculation><!-- calculations for 1st day of period -->
                                                                <calculationDate>2010-08-01Z</calculationDate>
                                                                <openingPrincipalAmount>600000</openingPrincipalAmount>
                                                                <principalMovement><!-- aggregated settled collateral movement for the day -->
                                                                                <payerPartyReference href="party1"/>
                                                                                <receiverPartyReference href="party2"/>
                                                                                <paymentAmount>
                                                                                                <currency>USD</currency>
                                                                                                <amount>100000</amount>
                                                                                </paymentAmount>
                                                                </principalMovement>
                                                                <effectivePrincipalAmount>600000</effectivePrincipalAmount>
                                                                <observedRate>0.043</observedRate>
                                                                <spread>-0.0030</spread>
                                                                <effectiveRate>0.040</effectiveRate><!-- = observed rate adjusted with spread -->
                                                                <accruedInterestAmount>666.66</accruedInterestAmount><!-- (0.40 * 600,000) / 360  -->                                                                           <cumulativeInterestAmount>666.66</cumulativeInterestAmount>
                                                </dailyInterestCalculation>
                                                <dailyInterestCalculation><!-- calculations for 2nd day of period -->
                                                                <calculationDate>2010-08-02Z</calculationDate>
                                                                <openingPrincipalAmount>650000</openingPrincipalAmount><!-- current day's principal amount = previous day's principal amount +/- movement amount for today -->
                                                                <principalMovement>
                                                                                <!-- aggregated settled collateral movement for the calculation date -->
                                                                                <payerPartyReference href="party1"/>
                                                                                <receiverPartyReference href="party2"/>
                                                                                <paymentAmount>
                                                                                                <currency>USD</currency>
                                                                                                <amount>50000</amount>
                                                                                </paymentAmount>
                                                                </principalMovement>
                                                                <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 -->
                                                                <accruedInterestAmount>704.89</accruedInterestAmount><!-- (0.39 * 650,666.66) / 360  -->
                                                                <cumulativeInterestAmount>1371.55</cumulativeInterestAmount>

                                                          <!-- = day1 accrued interest ($666.66) + day 2 accrued interest ($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_20101104_51wd3.zip
Description: FpML_collateral_xml_20101104_51wd3.zip