FpML-IRD Cross Currency Settlement method - proposal

[harry.mcallister@xxxxxxxxxxxxxxxxx]

ISDA recently published Supplement 23
to the 2006 ISDA Definitions, which describes a new method for calculating
the cash settlement amount for cross-currency swaps in the event of early
termination (section 18.3 Cash Settlement Method). 

In essence, the new cash settlement
provisions remove the assumption that cash settlement of cross-currency
swaps will only occur in one currency, and they describe an amended methodology
for treating quotes obtained from reference banks, in order to identify
and discard outlying valuations. In addition, a new cross currency settlement
matrix is published.

Much of the detail of the settlement
process will be determined by reference to the ISDA matrix, however the
possibility of settlement in two currencies implies a change to the FpML
interest rates CashSettlement model, which currently provides for settlement
in only a single currency.

I therefore propose to update the CashSettlement
complex type with the addition of a new element, crossCurrencyMethod,
 to the existing choice group (please see diagram below). A new complex
type, CrossCurrencyMethod, is defined for this element. This closely resembles
the existing CashPriceMethod, but differs in providing for a maximum of
two cashSettlementCurrency elements representing the currency, or
pair of discrete currencies, in which settlement is expected to occur.
Note that a validation rule is implied to ensure that the cash settlement
currency or currencies are consistent with the currencies of the trade.

The proposed schema is contained in
the attached zip (in order to minimise the zip file size, I have removed
the xml samples) - please refer to module fpml-ird-4-9.xsd, complex type
CashSettlement. Your comments are invited.

Best regards,
Harry

__________________________________________________________________________
Harry McAllister | Information Architect | Fixed Income Architecture
| BNP Paribas
4R223 | 10 Harewood Avenue | London NW1 6AA
tel: +44 (0)20 7595 3416 | email : harry.mcallister@xxxxxxxxxxxxxx

Attachment: FpML-4-9.crossCurrencyMethod.BNPParibas-proposal.zip
Description: Zip archive

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