Hi Harry,
The proposal looks very good to me.
Should we create a sample trade to show how the structure would be used?
Thanks,
Marc
From: harry.mcallister@xxxxxxxxxxxxxxxxx [mailto:harry.mcallister@xxxxxxxxxxxxxxxxx]
Sent: Thursday, August 05, 2010 5:39 PM
To: irdwg@xxxxxxxx
Cc: Marc Gratacos; Irina Yermakova
Subject: Cross Currency Settlement method - proposal
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
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