Market Practice Cleared Derivatives IM to Third Party Contract Notifications

Transcription

1 Market Practice Cleared Derivatives IM to Third Party Cotract Notificatios Versio: 1.9 Publicatio Date: May 2017 Author(s): ISITC Derivatives Workig Group DISCLAIMER This market practice documet has bee developed by the Iteratioal Securities Associatio for Istitutioal Trade Commuicatio (ISITC) as a statemet of professioal practices recommeded by ISITC. Istitutios providig the iformatio recommeded i this documet will beefit from the efficiecies iheret i a more automated trasactio process. Although all istitutios are ecouraged to act cosistetly with this documet, oe are required to do so, ad a failure to do so is ot, i ad of itself, evidece of egliget or iappropriate coduct.

2 Documet History Versio # Chage Date Descriptio of Chage Page Author /22/2012 Draft versio NA D. Luhar /5/ /12/2012 Fial versio. Market practice updated per ISITC member feedback. Updated Cover page, Documet history, ad laguage o page 7 for fial publicatio. NA D. Luhar 1,2,7 E. Choiski /17/ /29/ /22/ /13/2014 Updated to modify the couterparty defiitio ad cotract id defiitio. Removed sectio Messagig Structure as it is redudat; already defied i the Swaps Data Elemets spreadsheet ad Sequecig Examples spreadsheet. Made formattig chages 1. Fot o Title Headig to Arial 2. Idetig of bullets 3. Idetig of headigs. 4. Display logo cosistetly o the right side of the header sectio. Updated lik o Page 6 ad moved title o left side startig o Page 4. D. Luhar 11 D. Luhar D. Luhar D.Luhar /4/2015 Updated Activity Diagram 5 B Maig 1.8 6/10/2016 Added laguage to clarify swaptios deal ID 12 B Maig 1.9 5/24/2017 Updated exteral liks due to website update 7, 11 B Maig

3 Table of Cotets 1.0 Backgroud SCOPE DEFINITIONS ACTORS AND ROLES ACTIVITY DIAGRAM Busiess Defiitio BUSINESS DATA REQUIREMENTS MARKET PRACTICE RECOMMENDATIONS Appedix FPML 4.X MESSAGE SEQUENCE DIAGRAM MESSAGE USAGE RULES FPML SEQUENCING RULES RECOMMENDATIONS ON TRANSMISSION OF CONTRACT ID... 12

4 1.0 Backgroud This documet presets the Market Practice recommeded by the ISITC Derivatives Workig Group related to cotract otificatios set from Ivestmet Maagers to Third Party Providers icludig Custodias, Accoutig Agets ad Prime Brokers for Cleared Derivatives. Cotract otificatios from Ivestmet Maagers eable provisio of services such as settlemet, accoutig, valuatio ad recociliatio. Automatio of these otificatios has become a high priority due to the madate from CFTC to process OTC derivative trades by clearig house. 1.1 Scope The otificatios i scope i this documet relate oly to post-allocated trade evets i the lifecycle of Cleared OTC cotracts. Evets such as resets, periodic paymets, expiratios, exercises, ad credit evets are excluded. Affirmatio ad cofirmatio evets are also excluded. 1.2 Defiitios The cotract lifecycle evets covered i this documet are listed below with brief descriptios ad equivalet ames commoly used i the idustry: Iitiatio The cotract creatio evet. Also called Ope. Amedmet The bilaterally agreed revisio of oe or more terms of a cotract that ivolves more tha a chage i otioal ad has a ecoomic effect. The evets that are revised ca be cotract create, partial termiatio, cotract create cacels, ad cotract termiatio cacels. A amedmet is idicated by referecig the same coversatio id, but icremetig the versio. Termiatio The full or partial ed of the cotract. The partial termiatio is, i effect, a decrease of the otioal. A full termiatio is also kow as Close or Uwid, ad a partial termiatio is also kow as a Decrease. Cacel Iitiatio The cacel of a cotract create evet. This will cacel the ope trasactio. Cacel Termiatio The cacel of a full or partial termiatio of the cotract. 1.3 Actors ad Roles The roles ad actors i the cotract otificatio process are listed below. The roles played by the various actors i the processes dowstream from the otificatios are ot listed because they beyod the scope of this documet. OTC Cotract Notificatio Seder Ivestmet Maager Portfolio Maager Middle Office Provider Hedge Fud OTC Cotract Notificatio Receiver Custodia Bak Fud Accoutat Iterested Party/Vedor Prime Broker 4

5 1.4 Activity Diagram A Activity Diagram of the OTC Cleared Derivatives cotract otificatios process is icluded i this versio of the documet the diagram i sectio 1.4 shows all the activities that are i scope for cleared derivatives processig. Trade Date Ivestmet Maager Trade Received from SEF/ Middleware platform 1a. Trade Submissio SEF/ 1b. Trade Submissio 5a. Clearig Status/Cofirmatio Middleware 5b. Clearig Status/Cofirmatio Executig broker 6. Trade Notificatio 7. SEF performs SDR reportig 2, 3a. FCM Limit Check / Accept/Reject Trade 3b. Accept/Reject Trade Accoutig Aget Ay ed cliet accoutig aget or reportig party Delegated Reportig Party Ay ed cliet accoutig aget or reportig party Clearig Broker Trade Received from SEF/ Middleware platform 4. Acceptace of Trade Clearig House Trade Received from SEF/ Middleware platform 8. Delegated Reportig Party performs SDR reportig Trade Repositories Reportig resposibility is based local regulatio 9. Clearig Broker performs SDR reportig 10. Clearig House performs SDR reportig 1a, 1b Ivestmet Maager ad Executig Broker execute trade o SEF or submit trade to Middleware for Clearig. 2 SEF/Middleware submits trade to Clearig Broker to check agaist Clear Broker limits with the Ivestmet Maager 3a, 3b Clearig Broker ad Clearig House sed otificatio to SEF/Middleware of trade acceptace 4 Clearig House otifies Clearig Broker of trade acceptace 5a, 5b SEF/Middleware otifies Ivestmet Maager ad Executig Broker of Cleared Trade 6 Ivestmet Maager seds trade otificatio to Accoutig Aget/Delegated Reportig Party 7/8/9/10 (optioal) SEF, Delegated Reportig Party, Clearig Broker ad Clearig House perform SDR reportig to Trade Repository 5

6 Trade Date + 1 Ivestmet Maager Trade Received from SEF/ Middleware platform 3. Issues margi call 4. Netted margi paymet istructio Clearig Broker (CB) 1. Margi Requiremets 2. CCP auto-debits CB for Cliet Margi requiremets Clearig House (CCP) 6. Margi Paymet details Accoutig Aget Ay ed cliet accoutig aget or reportig party Custodia 5. Margi paymet Delegated Reportig Party Ay ed cliet accoutig aget or reportig party 1 CCP calculates IM ad VM requiremets ad commuicates requiremets to the Clearig Broker. 2 CCP will auto-debit the Clearig Broker accout for margi 3 Clearig Broker issues margi calls (IM & VM) to the Ivestmet Maager 4 Ivestmet Maager istructs Custodia to meet margi calls 5 Custodia seds paymet/collateral to Clearig Broker 6 Ivestmet Maager sed otificatio to Accoutig Aget/Delegated Reportig Party with margi movemet details 6

7 2.0 Busiess Defiitio 2.1 Busiess Data Requiremets ISITC ad the Asset Maagers Forum 1 (AMF) have collaborated to draft a Swap Data Elemets spreadsheet listig the recommeded IRS, CDS data elemets for Notificatio, Accoutig, ad Recociliatio processes. This documet has bee ehaced to iclude the ew data elemets that are required for Cetral Clearig as agreed to by ISITC members i the FpML Messagig Busiess Case versio The latest versio is available o the ISITC website. I the Swap Data Elemets spreadsheet, the Notificatio colum idicates whether the elemets are M(adatory), O(ptioal), or C(oditioal) i Iitiatio, Amedmet ad Termiatio evets. If the attribute is C(oditioal), the coditio will be explaied i the Coditio colum. I additio, there are examples of Notificatio messages withi the Swap Data Elemets spreadsheet to assist i determiig what a message may look like. Click o the documet lik below for the Swap Data Elemets spreadsheet. Swap Data Elemets 1 For more iformatio o the AMF go to 7

8 2.2 Market Practice Recommedatios 1. Status of Cotracts - Notificatios shall be set for cleared trades. 2. Timig of Cotract Notificatios - Cotract otificatios should be set real time ad, at the latest, by ed of trade date. 3. Cotract Notificatio Medium - Cotract otificatios should be set electroically. The recommeded sytax is FpML 2. Appedix sectio 3.1 (FpML 4.2, 4.4, ad 4.6) cotais additioal recommedatios whe FpML is used. If aother sytax or message type is used, it should iclude the elemets recommeded i the Swap Data Elemets documet. 4. Cotract Notificatios do ot iclude Cash Settlemet Istructios - Cotract otificatios may iclude cash paymet iformatio. These are ot to be iterpreted as cash settlemet istructios. Istead, we recommed usig the ISO20022 Customer Trasfer Iitiatio (pai ) to istruct paymets, ad the Notice to Receive (camt ) to advise o expected cash receipts. For additioal iformatio o cash settlemet istructio formats ad recommedatios, please refer to the Paymets MP Derivatives Appedix produced by the ISITC Paymets Workig Group. 2 Fiacial products Markup Laguage (FpML) is the idustry stadard for swaps, derivatives ad structured products. The ope source stadard, freely licesed, is owed by the Iteratioal Swaps ad Derivatives Associatio (ISDA) 8

9 3.0 Appedix The recommeded electroic message sytax is FpML, the idustry stadard. This appedix details the usage of FpML to support the busiess requiremets stated i previous sectios. 3.1 FpML 4.x Message Sequece Diagram The messages show i the followig sectio flow from Ivestmet Maager to Custodia / Accoutig Aget / Clearig Broker as illustrated i the diagram of sectio 1.4. The recommeded message sequecig rules through the life of a give swap cotract are also detailed Message Usage Rules FpML 4.2, 4.4, ad 4.6 iclude message types desiged to support the IM-to-Third Party cotract otificatio busiess requiremets. Whe they become available, FpML versios higher tha 4.6 will also support the messages listed below. The message types that i scope are: 1. Cotract create is for otificatio of the origial cotract as well as ay icrease to the cotract. 2. Partial Termiatio is for otificatio of a partial termiatio ad full termiatio. The partial termiatio message explicitly states the otioal amout that is to be termiated. Available i FpML 4.2 ad forward CotractCreated for the otificatio of a cotract iitiatio. CotractCacelled for the cacellatio of the otificatio of a cotract iitiatio. CotractPartialTermiatio for the otificatio of a partial termiatio. Available i FpML 4.4 ad forward CotractPartialTermiatioCacelled for the cacellatio of the otificatio of a partial termiatio. Available i FpML 4.6 ad forward CotractCreated for the otificatio of a cotract iitiatio. CotractCacelled for the cacellatio of the otificatio of a cotract iitiatio. CotractPartialTermiatio for the otificatio of a partial termiatio. CotractPartialTermiatioCacelled for the cacellatio of the otificatio of a partial termiatio. 9

10 3.1.3 FpML sequecig rules Sequecig rules are importat to establish ad maitai a coheret otificatio stream durig the lifecycle of a cotract. The key FpML elemets are the message ame, coversatioid, cotractid, ad cotractid versio. Refer to the matrix followig the rules listed below for sequece samples. Cotract Notificatio Sequecig Rules: a) All otificatios must iclude the <coversatioid> which uiquely idetifies each lifecycle evet for a give swap cotract. For example, the CotractCreated could have a <coversatioid> of 001. The ext evet otificatio for the same cotract, e.g. CotractTermiatio or CotractCreated, would have a differet <coversatioid>, e.g b) All otificatios of a give cotract must have a uique versioedcotractid->versio which sequeces the otificatios. The CotractCreated would ormally have a <versio> of 1, but it must be a icremet of the previous versio received. c) A otificatio of a give cotract ca be corrected with a subsequet oe of the same type ad <coversatioid>, but with a higher cotract id <versio>. d) A CotractCreated must precede ay of the other message types. e) A CotractPartialTermiatio that termiates the etire otioal of the curret cotract should be the last otificatio for that cotract, uless a CotractPartialTermiatioCacelled egates the termiatio otificatio. I the latter case, other message types ca follow, but with a differet <coversatioid>. f) A CotractPartialTermiatio with a zero <outstadignotioalamout> should be the last otificatio for that cotract, uless a CotractPartialTermiatioCacelled egates the termiatio otificatio. I the latter case, other message types ca follow, but with a differet <coversatioid>. g) A CotractPartialTermiatio should be the last otificatio for that cotract if the etire cotract is termiated. h) A CotractCacelled must be the last otificatio for that cotract. i) For a give swap cotract, a CotractPartialTermiatioCacelled must be the last otificatio with the <coversatioid> of the partialtermiatio. Example 1 The followig table illustrates rules (a) thru (d). The first two messages are CotractCreated that otify the cotract iitiatio evet,idetified by coversatioid 001. The secod CotractCreated message (with versio 2) corrects the first oe. The third message is a CotractCreated evet ad has ew coversatioid 002. The versio umber serves to sequece all the messages for cotractid IRS which the iteral asset iteral asset idetifier for ivestmet maager. The third message which is a cotract creates icreases the positio. Evet Descriptio Message to Admiistrator/Custodia Cotract Id coversatio ID # IM ad Dealer agree o ew cotract CotractCreated IRS IM provided icorrect Notioal, Amouts or Date iformatio o message to Admiistrator/Custodia CotractCreated IRS IM ad Dealer agree to icrease size of cotract by sedig a cotract create. CotractCreated IRS versio # 10

11 Example2 The followig table illustrates rule (e). Rules (f) thru (g) are the CotractPartialTermiatio ad CotractFullTermiatio equivalets of rule (e). Evet Descriptio Message to Admiistrator/Custodia cotract ID coversatio ID # versio # IM partially termiates the cotract. CotractPartialTermiatio IRS IM cacels the partial termiatio otificatio. CotractPartialTermiatioCacelled IRS IM ad Dealer agree to reduce part of the otioal o the cotract CotractPartialTermiatio IRS Refer to the matrix i the followig pages for sequece samples further illustratig all the above rules. CCP FpML Cotract Notificatio Sequecig Examples 11

12 3.2 Recommedatios o trasmissio of Cotract ID The sectio below describes the best practice for trasmittig trades usig FpML messages for cleared trades ad how idetifiers such as cleared deal id, cotract id are trasmitted ad the impact o ettig. Nettig ad trasmittig trades 1. Nettig for cleared trades requires that the ivestmet maagers sed through all cleared trades as per oe of the two methodologies defied below. a. Evet type cotract create to establish positio, icrease positio or decrease positio. The cotract create evets must have a cotract id, cleared deal id, custodia accout, clearig broker ad clearig house. All the aforemetioed data elemets must all be equal i order to et positios. b. Evet type cotract create to establish positio or icrease positio ad cotract termiate evet to decrease positio. The cotract create ad cotract termiatio evets must have a cotract id, cleared deal id, custodia accout, clearig broker ad clearig house. All the aforemetioed data elemets must all be equal i order to et positios. 2. Cotract Id a. The cotract id field is a madatory field. b. Ivestmet maagers that are auto/ selective ettig the cotract id is required to be positioal. The cotract id is expected to be idetical for all evets (cotract create ad partial termiatio) that are to be etted at the clearig house. c. Ivestmet maagers that are gross ettig, the cotract id is required to be uique. 3. Cleared Deal Id a. Market Practice for Cleared deal id Idetifier o the trade message from the ivestmet maager. i. default swaps product idetifier provided by the clearig house i.e. 1. CME - CDXIG12V2.14M. 2. ICE - ICE CODE (XY2001J18U0500XXI) ii. Iterest rate swap positioal idetifier provided by the ivestmet maager i.e. IRS99123 iii. Swaptio positioal idetifier provided by the ivestmet maager ie SWP

13 Example1 Trades set as cotract create oly methodology Sceario Custodia Fud Iitial Trade Ope 123 Decrease i Exposure 123 Chagig Exposure Directio 123 Trasactio Type Cotract Create Cotract Create Cotract Create Cotract ID Coversati o ID Versio USI Cleare d Deal Id CC P CM E CM E CM E Trasacti o Type FCM Notioal Buy of Sale of Sale of Goldma Sachs Total Net Positio 10,000, ,000,000 Goldma Sachs 2,000,000 8,000,000 Goldma Sachs 10,000,00 0-2,000,000 Sceario Example2 Trades set as cotract create ad cotract termiatio methodology Custodi a Fud Iitial Trade Ope 123 Icrease i Exposure 123 Decrease Exposure 123 Chagig Exposure Directio 123 Chagig Exposure Directio 123 Trasactio Type Cotract Create Cotract Create Partial Termiatio Partial Termiatio Cotract Create Cotract ID Coversati o ID Versio USI Cleare d Deal Id CCP CME CME CME CME CME Trasact io Type FCM Notioal Buy of Buy of PT of Buy of PT of Buy of Sale of Proectio Goldma Sachs Total Net Positio 10,000, ,000,000 Goldma Sachs 2,000,000 12,000,000 Goldma Sachs -5,000,000 7,000,000 Goldma Sachs 7,000,000 0 Goldma Sachs -5,000,000-5,000,000 13