FpML-IM-Custodian Technical Teleconference 2009-03-11 minutes

The group held a conference call on Mar 11 noon Eastern.

Attendees:

Robert Stowsky - Progress

Irina Yermakova - ISDA

Karel Engelen - ISDA

Ben Lis - T-Zero

Marie-Paule Dumont - SWIFT

Francoise Massin - SWIFT

Dave Friskics - Western Asset

Christian (Unger - BBH) ?

Mike Burg - BNY Mellon

Lucio Iida - BGI

Agenda and minutes:

Discussion on 100/500 CDS contracts. http://www.fpml.org/_wgmail/_cdwgmail/docSpJfImUWOc.doc

Presented by Ben Lis - chair of the FpML CDWG.
100/500 CDS contracts can be viewed as a new simplified form of vanilla single name CDS. Also known as Standard CDS.
For North American Corporates, these are also known as SNAC CDS. SNAC = Standard North American Corporate.
Only North American Corporate transactions covered initially. European, Emerging, Asian, etc, to follow.
Master Confirmation, Matrix, and Paper transactions are allowed.
Key characteristics of 100/500 CDS:

Standard spreads: 100 bps for investment grade and 500 bps for high yield transactions.
Standard roll dates: Mar 20, June 20, Sep 20, Dec 20 for SNAC.
Trades always have no start or end stubs, so the effective and termination dates must match a roll date.
Above rules result in upfront fees - similar to CDS Index.
Upfront fee continues to be inclusive of interest and value.

There is a new CDS calculator (open source) on ISDA site that can be used to calculate them uniformly.

<initialPayment> will have to be used because upfronts will normally be from seller to buyer.

Question raised: If it's possible (big question) that the upfront fee is from buyer to seller, then should we use <singlePayment> or <initialPayment>?

<initialPayment> will not work with current validation rules.
<singlePayment> may not work with new validation rules being proposed for FpML 4.6 -- Irina to forward some information.
SWIFT has subsequently indicated that the business validation for CDS in the SwiftNet Derivatives Service does not enforce <initialPayment> or <singlePayment> rules.

As a side note, FpML 5.x will eliminate the ambiguity between <singlePayment> and <initialPayment> inside the <feeLeg> structure.

All transactions will be of type No Restructuring, so the <restructuring> structure should be absent.

<noReferenceObligation> can be used for senior guaranteed underlyers. For senior unsecured, if the ISIN is not available, one possibility is to use a dummy ZZSENIOROBLI (allowed by DTCC) until the ISIN is available. For subordinates, instrumentId is required. Ben -- please correct if this is not worded properly.

Old contracts do not have to be converted, but Ben commented that from Apr 8 forward, for North American Corporates, 100/500 CDS will be most liquid so participants will be encouraged to convert.

Update on joint work with FpML CDWG relating to CDS Index factor and factored notional.

Ben, Marc, and Lucio working on a proposal to add 3 optional elements for CDS Index underlyers that have had credit events.
The 3 elements are factor, its effective date, and the factored notional.
The proposal will be presented by Lucio at the next CDWG meeting Wed Mar 18 9am Eastern.
David Friskics indicated we should be clear on which date in the credit event cycle the "effective date" refers to. Also, that the name for this date should be chosen carefully. It is possible it is exactly the auction date, but that will be discussed in the CDWG meeting.

Update on payment components work for FpML contract messages.

Lucio presented message structure snapshots of the proposed payment component breakdown, and a couple of message samples. They were attached in the meeting reminder

Next meeting will be on Apr 8 noon Eastern.

Please let me know of any errors/omissions.

Thanks

Lucio Iida
Principal
Design and Development Technologist

TEL 415 597 2288
CELL 415 717 9261
FAX 415 618 1667
lucio.iida@xxxxxxxxxxxxxxxxxx

Barclays Global Investors 400 Howard Street San Francisco, CA 94105

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