ISDA has published FpML versions 5.12 and 4.2 Trial Recommendation

The International Swaps and Derivatives Association, Inc. (ISDA) has published the Trial Recommendation 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:

• Reorganized the floatingRateCalculation and inflationRateCalculation types and associated model groups to limit the new elements (calculationParameters and fallbackRate) to places where they are relevant. No change in functionality
• Added support for observation shift for Compounded Indexes such as "GBP-SONIA Compounded Index".
• Added support for a new Zero Interest Rate Method Excluding Spread option in the 2021 Definitions - Negative Interest Rate Treatment.
• In addition, FpML 5.12 includes Loans enhancements.

FpML 5.12 Trial Recommendation (build 3) is available on the FpML website in the Specifications section at: https://www.fpml.org/spec/fpml-5-12-3-tr-1/

Changes in version 5.12 TR compared to FpML 5.12 LCWD (published May 17, 2021):

• Cross Asset Class Product Work - Interest Rate Work Stream:
• Added new enumerated value "CompoundedIndex" in CalculationMethodEnum to support observation shift for Compounded Indexes such as "GBP-SONIA Compounded Index".
• Added new enumerated value “ZeroInterestRateMethodExcludingSpread” in NegativeInterestRateTreatmentEnum to support a new option in the 2021 Definitions.
• Updated Schema annotation and online documentation for all new components.
• Added new examples to support fallback and also to demonstrate some averaging and compounding trades using existing (pre-5.12) features. Updated equity swap with an interest leg based on an OIS.
• Regulatory Reporting Work:
• Enhancements to support CFTC Amendments to Parts 43/45 (published November 2020)
• Syndicated Loans Work:
• Risk-Free Rate Related Structures
• Inherited the structures for Floating Rate from the fpml-shared schema.
• Extended inherited Floating Rate structures to fit Loan asset classes use-cases.
• XML Examples
• Developed additional XML examples to accommodate Risk-Free Rate related Structures
• Revised the example XML file to account for all examples
• Updated support documentation for all XML examples
• Business Validations
• Extended the business validations to account for new Risk-Free Rate related structures and additional Loan Legal Action and Loan Covenant Obligation structures.
• User Manual
• Updated to incorporate changes for Risk-Free Rate related structures, Loan Legal Action, and Loan Covenant Obligation design. All updates will be finalized with the Final Recommendation release.
• Clean-up work:
• Reorganized the floatingRateCalculation and inflationRateCalculation types and associated model groups to limit the new elements (calculationParameters and fallbackRate) to places where they are relevant. No change in functionality
• Within StubFloatingRate, DEPRECATED FloatingRate.model group (floatingRateMultiplierSchedule, spreadSchedule, rateTreatment, capRateSchedule, floorRateSchedule and capFloorStraddle). These conditioning parameters should never be applied to the stub rate, rather to the original rate. They are retained for backward compatibility with previous versions of the standard.
• Within SwaptionPhysicalSettlement, DEPRECATED predeterminedClearingOrganizationPartyReference in favor of new mutuallyAgreedClearinghouse component. Rationale: the element was an interim solution introduced in a 5.x version. It is now superseded in the ISDA docs (both 2006 and 2021) with the mutuallyAgreedClearinghouse term. The new structure is more flexible and aligned with ISDA Defs
• Within ExerciseProcedure, DEPRECATED splitTicket and limitedRightToConfirm flags. Rationale: for swaption it does not make business sense in that product.
• NonEmptyLongScheme, NormalizedString, NonEmptyNormalizedString, NonEmptyScheme, NonEmptyString, NonEmptyToken, NonEmptyURI simple types have length and / or basetype NON-BACKWARD compatible changed compared to 5-11. These String type changes were approved by the FpML Standards Committee on July 13, 2020.

A more detailed overview of the changes in version 5.12 can be found in Section 19 of the online documentation.

FpML 4.2 Trial Recommendation (build 10) is available on the FpML website in the Specifications section at: https://www.fpml.org/spec/fpml-4-2-10-tr-4/

FpML Versions 4.2, 4.3 & 5.5 Support:

Summary:

A solution has been offered 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 (May 10 2021) adopted 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.

ISDA has published the trial recommendation in synchronicity with the 2021 ISDA Definitions Implementation Plan. This would permit members a period of a month or two to revert with comments and questions. 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 - as follows:

Recommendation:

The 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 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
• Taken as seen, with no warranty of the validation rules
• No warranty 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