The International Swaps and Derivatives Association, Inc. (ISDA) has published the Last Call Working Draft for Financial products Markup Language (FpML) version 5.12 and version 4.2.
FpML 5.12 & FpML 4.2 Highlights
The main enhancements compared to the corresponding previous versions are:
- In support of the overall ISDA 2021 Definitions initiative, the new FpML Version 5.12 and the legacy FpML Version 4.2, include the following changes:
- The new cash settlement methods included in the ISDA 2021 Definitions, such as the mid-market valuation and the replacement value methods.
- Modular daily calculated rates e.g. lookback compounded and observation period shift calculation rates, that are being developed for the 2006 Definitions and included in the 2021 Definitions.
- Defining fallback rates to help facilitate internal Straight Through Processing.
- In addition, Version 5-12 includes several new fields to better support CFTC Amendments to Part 45 regulatory reporting and Loans enhancements.
FpML 5.12 Last Call Working Draft (build 2) is available on the FpML website in the Specifications section at: https://www.fpml.org/spec/fpml-5-12-2-lcwd-1/
Changes in version 5.12 LCWD compared to FpML 5.12 Working Draft (published March 29, 2021):
- Cross Asset Class Product Work - Interest Rate Work Stream:
- Provided more explicit way of representing modular daily calculated rates e.g. lookback compounded and observation period shift calculation rates, that are being developed for the 2006 Definitions and included in the 2021 Definitions.
- Added support for fallback rate calculation.
- Optimized the new cash settlement provisions structure and added support for the situations, where the parties are not explicitly mentioned.
- Added a new and updated new supporting examples.
- Regulatory Reporting Work:
- Added enhancements to support CFTC Amendments to Parts 43/45 (published November 2020).
- Loan Work:
- Added support for Loan Legal Actions and Tasks, as well as Loan Covenant Obligation.
- Floating Rate Structures were redesigned wo support risk-free rates, maintaining the old structures as “legacy” types in order to support the gradual transition.
A more detailed overview of the changes in version 5.12 can be found in Section 19 of the online documentation.
FpML 4.2 Last Call Working Draft (build 9) is available on the FpML website in the Specifications section at: https://www.fpml.org/spec/fpml-4-2-9-lcwd-2/.
FpML Versions 4.2, 4.3 & 5.5 Support Proposal
A solution has been proposed in support of three legacy versions of FpML v. 4.2, v.4.3 & v.5.5, ensuring firms are prepared to meet the broader 2021 Definition Implementation timeline & Interest Rate Transition timeline, and is affordable within existing budgets
FpML legacy version support
The FpML Standards Committee (April 13 2021) discussed the staff-proposed approach to update legacy versions in 2021. This included outlining the boundaries where ISDA would provide support and updates, where members would be expected to support themselves. For example, versions other than 4.2 and 4.3 and 5.5 would be on a member ‘roll your own’ basis – but with guidance notes provided by ISDA. This was the approach formally put to the FpML Standards Committee on Monday by the Chair (Harry McAllister), prompting no formal objections.
ISDA has published the last-call working draft in synchronicity with the go-live date in mid-May and will follow with the trial recommendation around mid-July with the recommendation slated for early Fall 2021. This would permit members a period of a month or two to revert with comments and questions, with the trial recommendation slated for mid-summer. If there are no issues during the implementation process, ISDA would seek to publish it as a recommendation in mid-September, and therein supporting the overall 2021 Definitions October 2021 milestone.
The recommendation was as follows:
The previous Standards Committee (March 2021) discussed the merits of supporting the requirement to accommodate changes to FpML version 4.2, in light of the proposed changes brought about by the version 5.12. The latest Standards Committee (April 2021) discussed the merits of supporting limited updates to versions 4.3 and 5.5, as well as the previously discussed 4.2.
The FpML Standards Committee (April 2021) recognized that some limits and caps may have to be agreed in advance to accommodate and support the above requests, mindful of the constraints of cost, effort and time. This involved:
- ISDA and interested members work together to identify the differences between relevant versions in advance of the steps outlined below
- Prioritizing on changes limited to just the schemas (so without full documentation)
- Focusing upon providing new use examples only, and not updating existing ones
- Republishing the existing examples with some limited guidance notes to help explain
- Disclaimer with respect to the validation rules (ie buyer beware)
- Disclaimer with respect to providing member specific technical implementation support, both immediate and ongoing
- Focusing upon 4.2, 4.3 and 5.5 – and all other intermediate versions offered on a member ‘roll your own’ basis only with guidance notes provided
- Member specific FpML enhanced / custom versions, such as 4.3 and 5.5 will not be directly supported from a member’s customer implementation perspective
- FpML technical implementation helpdesk related support questions may incur additional charges where the issue is identified as in internal member / member’s client IT issue and not related to the FpML Standard and Governance.
The FpML Team