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Re: FpML-IRD BRL CDI Swaps - Future Value Notional


Jamie,

Thanks for putting this proposal together.

Reading the ISDA/EMTA document, I suspect that that a couple more properties may be required to support the recommendation fully.

Point 3 of the recommendation states (my highlighting):

3.        Contracts for BRL CDI Swaps should replicate the onshore BMF contract in order to reduce market risk. To implement this approach in a uniform manner for the market, contracts for BRL CDI Swaps shall specify values for present notional amounts (as of the trade date of the contract), future value notional amounts (as of the termination date of the contract) as well as a fixed rate day count fraction that reflects a set number of calculation days for the transactions fixed as at the trade date.

This suggests to me that a complete implementation should contain currency and amount  as per your proposal, but also the calculation period daycount (i.e. numerator in the day count fraction) and possibly also the value date for the future notional amount (taking the FpML approach of being completely explicit, instead of leaving the value date to be assumed from the context).

We could create a complex type, called (for the sake of argument) FutureValueAmount, which extends FpML Money with the addition of calculationPeriodNumberOfDays and valueDate:


Then the futureValueNotional element would become an instance of this type; calculationPeriodNumberOfDays  would contain the daycount between the (adjusted) effective and termination dates, while valueDate would contain the (adjusted) termination date.

The other aspect of the proposal which needs careful consideration is the positioning of the futureValueNotional . I agree that it doesn't seem appropriate to introduce new content within notionalSchedule. The new element will be used exclusively with BRL-CDI swaps, and given that these products are exclusively non-deliverable (?), I wondered if it might fit alongside settlementProvision (again, I don't think it would be appropriate to add the element within the SettlementProvision type). However on reflection, I think that Calculation is the correct location for the futureValueNotional - the case becomes more compelling if the calculation period daycount is added to its content; then proximity to dayCountFraction becomes important.

I would like us to be in a position to confirm adoption of this change by the next meeting of the Working Group, currently scheduled for Wednesday 26th August - therefore please submit your comments and/or suggestions on the proposal to the irdwg mailing list in the interim.

Best regards,
Harry McAllister

Chair, IRD-WG

Fixed Income Architecture
BNP Paribas
+44 20 7595 3416







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Jamie.Orme@xxxxxx

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FpML-IRD BRL CDI Swaps - Future Value Notional





IRD WG,

Please find attached proposal to support the Future Value Notional for BRL CDI Swaps:

<<fpml-ird-4-6.xsd>>

Rather than introducing a new element within the notionalSchedule, have added a new optional element called futureValueNotional (of type Money) to the end of calculation:

All discussion to date on this topic is attached here for reference:

<<FW: FpML-IRD Fw: IRD-WG Call: Wednesday 17 June>>

Harry – unless anyone has any objections, could we look to adopt this via email approval rather than having another meeting on this?  Our internal documentation team would like to get this change adopted ASAP.

Many Thanks

Jamie

[attachment "ole1.bmp" deleted by Harry MCALLISTER/UK/EUROPE/GROUP] [attachment "fpml-ird-4-6.xsd" deleted by Harry MCALLISTER/UK/EUROPE/GROUP]



----- Message from "Orme, Jamie" <Jamie.Orme@xxxxxxxxxxxxxxx> on Tue, 28 Jul 2009 18:23:51 +0100 -----
To:
"irdwg@xxxxxxxx" <'irdwg@xxxxxxxx'>
Subject:
FW: FpML-IRD Fw: IRD-WG Call: Wednesday 17 June


Hi
 
In addition to the below and following on from our last call, I have talked to our documentation team again with regard to adding the Future Value Notional and whether or not we would need to support amortising deals.
 
To quote directly:
 
“To answer your question, for the standard BRL CDI swap / swaption products, they are not amortizing as they are one payment based on a fixed notional. Outside this standard product, it would be possible to be a BRL swap with multiple payment dates which in theory could be amortizing, however we have never seen this and do not expect to in the future”
 
On the last call, recall Markitwire mentioning that they already have an internal modification to support Future Value Notional.  Given that we are unlikely to ever need to support amortising deals (certainly not as part of 4.x) could we look to go with what they have?  Could someone from Markitwire send on details of the change they have already made?
 
Many Thanks
 
Jamie
 
From: Orme, Jamie
Sent: Tuesday, June 16, 2009 6:17 PM
To: 'irdwg@xxxxxxxx'
Cc: 'mgratacos@xxxxxxxx'; 'iyermakova@xxxxxxxx'
Subject: RE: FpML-IRD Fw: IRD-WG Call: Wednesday 17 June
 
If possible would very much like to discuss Brazilian CDI Swaps and the addition of a Future Value Notional amount to the schema.  As per attached, the value can be calculated from information currently available in the confirmation.  However, understand that the explicit inclusion of this value is now recommended, as per ISDA best practise document (also attached).  As a consequence we are starting to see clients include this value on incoming documents.
 
Understand it is typically represented as follows (following on from example in first attached document):
 

1.  The terms of the Transaction to which this Confirmation relates are as follows:
 
Notional Amount (Trade Date Present Value Notional Amount):
 
[BRL 13,259,150.28]
 
Trade Date:
  		[DATE]
Effective Date:
  		[DATE]
 
Termination Date:
 
[DATE], unadjusted
For informational purposes only, the Termination Date Future Value Notional Amount is:
 
 
 
[BRL 17,300,000.00]
 

 
Has anyone else seen this requirement?
 
Happy to put together a proposal following meeting if everyone is in agreement that it is something we should be looking to include in the schema.
 
Thanks
 
Jamie
 


From: irdwg@xxxxxxxx [mailto:irdwg@xxxxxxxx] On Behalf Of harry.mcallister@xxxxxxxxxxxxxxxxx
Sent: Tuesday, June 16, 2009 5:17 PM
To: irdwg@xxxxxxxx
Cc: mgratacos@xxxxxxxx; iyermakova@xxxxxxxx
Subject: FpML-IRD Fw: IRD-WG Call: Wednesday 17 June

All,

The Interest Rates Working Group will meet tomorrow, Wednesday 17 June, at 0900 New York/1400 London.

I would like to propose the following agenda:

Agenda
1.      Proposal on Digital cap/floors (Harry McAllister, BNP Paribas)
2.      Proposal on changes to the FRA model (Philip Leach, DTCC)
3.      Opportunities for extending IRD product coverage: what next?
4.      AOB
Best regards,
Harry McAllister

Chair, IRD-WG

Fixed Income Architecture
BNP Paribas
+44 20 7595 3416


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