Clearing party for Swaption and underlying

[vtetiura]

Hi,
Could you please advise regarding clearing party on a swaption:
1) If I define clearing party (Clearing organization) at the swaption, how to show that I intend to clear underlying swap and this clearing party relates to underlying only?
2) How to define two clearing parties on a swaption: one for swaption, second – for underlying? How to differentiate them? How to show which instrument each relates to?

First question relates to business case when two parties agreed CCP for underlying swap at the swaption execution.

Second question occurs due to CME offered swaption clearing earlier this year. This requires to show which instrument the clearing party relates to and possibility to define two clearing parties.

I have three solutions in the mind:
a) Add reference to instrument. This requires schema extension. (the same approach is used in FIX).
b) Add new role for underlying swap. (Don’t like this solution at all)
c) Define different @id for each clearing party which would reflect its purpose. (It’s not good also).

Could you please help?

[h_mcallister]

Hi Vitalina,

I think you are referring to Cleared Physical Settlement for swaptions … (?)
This is supported by the swaption/physicalSettlement block (in choice with cashSettlement). This contains a mandatory clearedPhysicalSettlement boolean flag, and optional predeterminedClearingOrganizationPartyReference. The clearedPhysicalSettlement flag indicates whether the swaption is intended to exercise into a cleared swap, while the party reference allows the clearer for the resulting swap to be identified (if known).

So the clearer for the swaption should be identified in the context of the trade as usual e.g. by producing partyTradeInformation/relatedParty with partyRole ‘ClearingOrganization’), and the clearer for the resulting swap (physically exercised underlyer) should be identified via swaption/physicalSettlement as described above.

Please let me know if this answers your question …

Best regards,
Harry McAllister
Chair, FpML IRD-WG

• This reply was modified 8 years, 6 months ago by h_mcallister.
• This reply was modified 8 years, 6 months ago by h_mcallister.
• This reply was modified 8 years, 6 months ago by h_mcallister.

[esther.delgado]

Hi Harry,
It seems that physicalSettlement is not available in FpML 4.7.
Is there any way to describe that the swaption will physically deliver a swap that will be cleared in a clearing house in version 4.7?
Thanks in advance for your help in this matter.
Kind regards,
Esther Delgado

[Author]

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