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RE: FpML-IM-Custodian Technical Teleconference 2009-05-20

 
David Friskics has kindly provided brief notes on other non-trade contract changes.  We will use them in our conference call tomorrow.  Thanks David.

From: im-custodian@xxxxxxxx [mailto:im-custodian@xxxxxxxx] On Behalf Of Iida, Lucio BGI SF
Sent: Monday, May 18, 2009 10:26 PM
To: im-custodian@xxxxxxxx
Subject: FpML-IM-Custodian Technical Teleconference 2009-05-20

 
WG members,
 
A technical call is scheduled for Wed May-20 at 12pm Eastern.  Call number details are below.   Attached is the document that describes the proposed new ContractAmended and non-trade ContractChanged messages.
 
US: 888 481 3032
Non US: 617 801 9600
Code: 28413758
 
 
The tentative agenda is below.  Please forward any suggestions.
  • Discussion of the non-trade contract change business cases to be provided by David Friskics.
  • Discussion of the document from Andrew Jacobs of the FpML Modeling Task Force on the ContractAmended and non-trade ContractChanged messages, corresponding cancellations, and equivalent messages in FpML 5.0.
  • AOB
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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Attachment: Trade & Contract Amendments 2009-05-08.doc
Description: Trade & Contract Amendments 2009-05-08.doc

--- Begin Message ---
Hey Lucio,
 
Here is a brief description of the events we spoke about in last week's meeting:
 
Factor Adjustment of Asset-Backed Underlyers Due to Paydowns/Writedowns
 
ABS/ABX Factor Adjustments
- Factors adjustments are posted monthly as a result of paydowns/writedowns of the underlying asset-backed pools.
 
Paydowns
- When the outstanding loan balance of the underlying asset-backed pools is paid off, the factor of the ABS/ABX swap will decrease
- As a result of the factor decrease, the notional will be decreased (calculated by multiplying the original notional by the factor change)
- There is no cash movement for payments
 
Writedowns
- The outstanding loan balance is written-off (reduction in the recognized value of underlying asset)
- The factor decreases, causing the notional to decrease (calculated by multiplying the original notional by the factor change)
- A cash payment is made to the Buyer of Protection in the amount of the notional value written-off
 
Resets on Equity Total Return Swaps
 
Equity Index Swaps
- Two parties exchange cash flows based on the percentage change in one or more stock indices for a specific period
- Reset dates are agreed upon in the initial contract
 
Reset Dates
- Date in which payments within the swap calculation period become effective
- Equity Payments are calculated by multiplying the change in the index levels between effective/reset dates by the notional amount.
- The price resets to zero, and the notional will increase/decrease by the amount of the gain/loss for the Equity Payment
 
We can discuss these points in greater detail on future calls, but I feel we should focus more on the ABS/ABX adjustments, as the process should be consistent across all parties.
 
Regards,
 
David Friskics
Western Asset Management
626-844-4020
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