FpML Payload Definition for IRS & CDS (Pre-Trade)

Transcription

1 FpML Payload Definition for IRS & CDS (Pre-Trade) Document Status Draft Document Author(s) Etrading Software Ltd Document Date 19 November 2012 Document Version 6.0 Etrading Software Ltd 32 Threadneedle Street London EC2R 8AY Web: Tel: Fax: Page 1

2 Agenda Change Summary Review of Open Actions Objectives Requirement Summary Scope Examples CDS Attributes Customer Can Change Payload Definition - Approach Discussion Point Next Steps Next Meeting Appendix Page 2

3 Change Summary Date Version Detail 15 Oct 2.0 CDS based on a convertible bond and single name CDS based on a mortgage or loan de-scoped Example added for CDS based on CDX High Volatility Investment Grade Added slide documenting CDS attributes customer are able to change 22 Oct Nov 4.0 No changes 13 Nov Nov 6.0 Non-standard single name example added Updated slide - CDS Attributes Customers Can Change Added slide - Payload Definition - Approach Added slide - discussion point on the buyer/seller convention Example FIX messages Next Steps - bring discussion to FIX-FpML Collaboration Working Group on 26 th Nov Added slides to discuss Currency, Security ID and the convention for the buyer/seller of a CDS Page 3

4 Review of Open Actions No. Action Created Owner Comments Follow up with Karel on kick-off meeting for Credit Working Group and/or do a call for participation Decide if it is necessary to re-name the protectionbuyer field in the FpML payload Decide whether the SecurityID should be included in the FpML payload Decide whether the Currency field should be included in FIX or the FpML payload 22 Oct ISDA/Irina In Progress 13 Nov Task Force Slide Nov Task Force Slide Nov Task Force Slide 12 Page 4

5 Objectives 1. Creation of a lite version of the FpML schema to define CDS for use in pre-trade based on existing FpML standards initiatives 2. Convene working group of FICWG, SEFs and FpML Task Force to make rapid progress 3. Do not create any dependencies on successful completion of other initiatives such as UPI Page 5

6 Requirement Summary Deliverable FpML payload definitions for pre-trade to be used within FIX messages to define CDS (Technically: XML schema) Requirements Leverage the FpML data representation protocol for OTC derivatives in order to provide an electronic reference (a.k.a. canonical) representation in the form of XML documents for each of the distinct derivatives products (of type: IRS or CDS) that are eligible for electronic execution through SEFs Detailed business requirements can be defined by Swap Execution Facilities (SEFs) that support RFQ FpML schema representation limited to products that are traded by SEFs through RFQ Priorities Outright vanilla IRS Outright vanilla CDS Timelines There is an urgency in the industry to deliver this initiative rapidly (measured in few months) Page 6

7 Scope Outright Vanilla CDS Single name Indices Future Iteration Tranches Baskets Swaptions Callable/puttable CDS Convertible Bond Mortgage & Load 1. Bond 1. itraxx - Europe Indices - Asia Indices 2. CDX (US) - Investment Grade - High volatility investment grade - High yield (all ratings) Note: Multi leg instruments (switches and rolls) will be covered as part of the FIX FpML working group discussions once the schema for the outright CDS is defined Page 7

8 Examples Product Mapping: Products Examples Comment Single name Euro CDS (Adecco S.A.) Example 1 Single Names Bond Single name USD CDS (A.I.G.) Example 2 Non-standard Single name CDS (IBM) Example 7 Non-standard effective date, payment frequency, restructuring, currency, recovery rate and with collateral itraxx CDS based on itraxx Europe Index Example 3 Indices CDX CDS based on CDX Investment Grade Index Example 4 CDS based on CDX High Yield Index Example 5 CDS based on CDX High Volatility Investment Grade Example 6 Page 8

9 CDS Attributes Customers Can Change Business Attribute (Voice) Suggested Location Example Seniority Pre-trade payload definition SubTier1, SubUpperTier2 Dates (all available schema dates) Pre-trade payload definition Contract Type Pre-trade payload definition SNAC Counterparty and clearing house FIX message Currency Pre-trade payload definition USD Effective date Termination date Restructuring type Pre-trade payload definition R, ModR Coupon (i.e. 50 vs. 100) Pre-trade payload definition 50, 100 Pay-Frequency Pre-trade payload definition Quarterly Evaluation Method (ISDA fair value) => changing the Evaluation Method changes the upfront fees Pre-trade payload definition ISDA fair value Recovery rate Pre-trade payload definition 40% Upfront fees Collateral FIX message: value based on price Page 9

10 CDS Attributes Customers Can Change Business Attribute (Electronic) Suggested Location Example Notional FIX message Prime Broker Account FIX message Reference Entity Pre-trade payload definition AIG Maturity Pre-trade payload definition 5Y Reference Obligation Pre-trade payload definition RED Code Page 10

11 Payload Definition - Approach The approach for a schema: Pre-trade payload definition will contain a choice between: Either Reference to a physical settlement matrix e.g.: Standard North American Corporate (SNAC) OR The entire attribute set to define the product for bespoke products e.g.: Currency=USD; Business Days = London & NY; Credit Events= Venue Feedback Venues are happy with this approach Page 11

12 Discussion Point - Currency There is uncertainty as to whether the currency should be in FIX, the FpML payload or both Recommendation: (./datadocument/trade/creditdefaultswap/protectionterms/calculationamount/currency) should be part of the FpML payload definition Reasoning: We would like to be consistent with the agreed approach for rates which is documented below Integration Points Outright IRS Products Attributes FIX/FpML Payload Questions Recommendations Currency Currency/Currencies contained in FpML payload What to do if currency exists in FIX? FIX overrides, FpML takes precedence or malformed message? If currency is part of the product definition then use FpML If relevant to trading then represent attributes in FIX The protection amount currency may differ from the fees currency. In such a case, it is expected to have the protection currency in the FpML payload and the fees currency MAY be part of the FIX message. Page 12

13 Discussion Point - Security ID There is uncertainty as to whether the Security ID should be included as part of the FpML payload Recommendation: We recommend having the Instrument ID in the FIX message and also in the FpML payload The Product ID in the FpML payload should have a namespace of the ECN that sent it Reasoning: This will make sure the payload is self contained and independent of any other information Note: There is no similar recommendation exists for rates (IRS) schema Page 13

14 Discussion Point - Buyer/Seller Convention Current Convention: The buyer of a CDS is the protection buyer The seller of a CDS is the protection seller For high yield instruments, some venues use the convention that you buy protection whereas other venues use the convention of buying risk There are two alternative proposals to add an element to the pre-trade product definition: # FpML Element name 1 st enumeration 2 nd enumeration 1 Default existing in the current schema <protectionbuyer> Buyer Seller 2 <protectionside> Same Opposite This new element in the payload, together with the Side(54) FIX field should well define the product convention: A product where the (FIX) buyer buys the protection (default) will have one of: <protectionbuyer>buyer</protectionbuyer> <protectionside>same</protectionside> A product where the (FIX) buyer buys the risk (e.g. High Yield CDS) will have one of: <protectionbuyer>seller</protectionbuyer> <protectionside>opposite</protectionside> Default Position: proceed with existing schema unless we reach a consensus Page 14

15 Next Steps FpML Credit Working Group to review draft of the CDS pre-trade schema Take discussion to the FIX-FpML Collaboration Working group on 26th November Assumption: both steps above can proceed in parallel Page 15

16 Next Meeting FIX FpML collaboration working group: Monday 26 th November from 17:00-18:00 GMT (12:00-13:00 EST) Page 16

17 Appendix: Background Overview Jun 2011 Kick- off of FPL FICWG initiative to create Best Practices for trading IRS & CDS Feb 2012 Ratification of Best Practices for trading IRS & CDS Apr 2012 Kick-off of FpML Task Force to define pre-trade product definition for IRS Jun 2012 Ratification of IRS pre-trade product definition by FpML Task Force Aug 2012 Ratification of integration of IRS pre-trade product definition with FIX by FIX FpML Collaboration Working Group Sep 2012 FpML Task force kick-off CDS pre-trade product definition Page 17

18 Appendix: Background Supporting Collateral FIX Protocol Limited (FPL) announces support of industry initiative to accelerate FIX adoption for fixed income ndustry%20initiative%20to%20accelerate%20fix%20adoption%20for%20fixed%20income.pdf FPL-FIX Best Practices for CDS & IRS Electronic Trading ndustry%20initiative%20to%20accelerate%20fix%20adoption%20for%20fixed%20income.pdf FIX-FpML Collaboration Working Group: Integration of FpML Payload for IRS with FIX messages 05%200.pdf Page 18

19 Appendix: Assumptions Initial schema based on Latest FpML version Define full product payload definition Versus: Reference product + Delta approach which will be considered upon requirements Scope assumption The FpML representation should not be restricted to just this product scope. The schema should retain its flexibility so the scope can be easily extended in the future. Page 19

20 Appendix: Market Convention Market convention for side of a CDS We have proposed the following convention - The buyer of a CDS is the protection buyer - The seller of a CDS is the protection seller For high yield instruments, some venues use the convention that you buy protection whereas other venues use the convention of selling risk Page 20

21 Appendix: Approach Apply similar approach and process as used for defining the IRS payload Two Step Approach: Step-1 Creation of technical proposal Technical review Carried out under the guidance of FpML Task Force Step-2 Discussion and review by other stakeholders Ratification of the proposal Carried out under the guidance of FIX-FpML Colloaboration Working Group Page 21

22 Appendix: Approach Governance Structure Governance structure for Step-1: Task Force with representation from: - Swap Execution Facilities (business requirements) - FpML Task Force (technical expertise) - FICWG (stakeholders) - FPL (stakeholders) Proposed Meeting frequency: Weekly Governance structure for Step-2: FIX-FpML Collaboration Working Group Page 22

23 Appendix: FIX and FpML Integration Requirements Best Practices Guide for IRS and CDS Recommends The definition of a Standard Outright Instrument should be supplied within a SecurityXML component block of a Securities Reference Data message using an XML payload The definition of a Standard Multi-leg Instrument should be supplied within the InstrumentLeg components. The reference to each leg of the instrument needs to be supplied in LegSecurityID(602) The first trading message (QuoteRequest) of a Non-standard instrument must contain instrument definition in an XML payload and also must supply an associated SecurityID(48) FIX Messages Business attribute FIX field(s) Example Parties Buyer or Seller PartyID(448) PartyIDSource(447) PartyRole(452) Bank #1 Fixed Rate BidPx(132) Or Price(44) 2.38 OfferPx(133) PriceType(423) Percentage(1) Notional Amount OrderQty(38) Instrument SecurityID(48) ID1 SecurityXMLLen(1184)? SecurityXML(1185) SecurityXMLSchema(1186) Specify the attributes required with in the XML payload for the pre-trade messages Direction Side(54) Buy Potential task for 2012 Note: The XML payload is sent once in either a FIX QuoteRequest message or a FIX Reference Data message. Additional FIX messages should reference the XML Payload by providing its Security ID FpML Payload? Page 23

24 General Terms Trade Header Appendix: CDS Attributes from FpML Confirmation Schema FpML Attribute Suggested Location Examples Parties FIX messages Trade Date FIX messages Effective date Pre-trade payload definition. Existing FIX tag: EffectiveTime(168) 1, 2, 3, 4, 5 Termination Date Pre-trade payload definition. Existing FIX tag: EndDate(917) 1, 2, 3, 4, 5 Buyer / sellers account + reference Date adjustment FIX messages Pre-trade payload definition Page 24

25 Mortgage Reference Obligation: Bond Appendix: CDS Attributes from FpML Confirmation Schema FpML Attribute Suggested Location Examples Bond Identifier Currency Issuer Seniority Coupon Type CouponRate Maturity ParValue Face Amount Payment Frequency Day Count Fraction Convertible Bond Underlying equity Redemption Date Original principal amount Pool Sector Tranche Pre-trade payload definition Existing FIX tags SecurityID (48) or UnderlyingSecurityID(309) Currency(15) or UnderlyingCurrency(318) Issuer(106) or UnderlyingIssuer(306) Seniority(1450) or UnderlyingSeniority(1454) CouponRate(223) or UnderlyingCouponRate(435) MaturityDate(541) or UnderlyingMaturityDate(542) Pre-trade payload definition Pre-trade payload definition Existing FIX tags Pool(691) 1, 2 Loan parameters Index Reference Pre-trade payload definition Pre-trade payload definition 3, 4, 5 Page 25

26 Fee Leg Appendix: CDS Attributes from FpML Confirmation Schema FpML Attribute Suggested Location Examples Initial Payment FIX messages Payer + Receiver Dates Pre-trade payload definition 3, 4, 5 Amount FIX messages: value based on Price Single payment Pre-trade payload definition 1, 2 Dates Fixed amount? 1, 2 Periodic Payment Pre-trade payload definition 1, 2, 3, 4, 5 Payment Frequency First period Date Last period Date Roll Convention Adjusted dates Fixed Amount Calculations Day Count Fraction Fixed amount Currency Fixed Amount calculation: day count fraction Fixed amount Fixed amount calculation o Calculation Amount o Step Fixed amount calculation o Fixed rate Marked Fixed Rate? Non pre-trade attribute? 3, 4, 5 Initial Points Quotation Style Page 26

27 Cash Settlement Terms Protection Terms Appendix: CDS Attributes from FpML Confirmation Schema FpML Attribute Suggested Location Examples Calculation Amount FIX messages: Quantity 1, 2, 3, 4, 5 Credit Events Pre-trade payload definition 1, 2 Obligations Pre-trade payload definition Floating Amount Events Pre-trade payload definition Settlement currency? Valuation Date + Time Quotation method Quotation Amount Minimum quotation amount Dealer Cash Settlement business Days Cash Settlement Amount Recovery Factor Fixed settlement Accrued Interest Valuation method Physical Settlement Terms? Suggest to de-scope? Page 27

28 Appendix: Example 1 Bespoke CDS: Quote Negotiation Scenario: Customer requests a quote Dealer quotes Customer counters Dealer executes on the quote Execution venue acknowledges sd Example 1 Execution Venue Dealer Customer Customer Submits Quote Request A. Customer Requests a Quote Instrument: Effective Date: Scheduled Termination Date: Index Reference Information: CDX.NA.IG.19 Currency: USD Settlement Entity Matrix: SNAC Direction: Customer buys the protection Dealer sells the protection B. Dealer Quotes C. Customer Counters D. Dealer Executes on the Quote E. Execution Acknowledgement Customer sees Quote Execution Report Customer Counters Page 28

29 Appendix: Example 1 Bespoke CDS: Quote Negotiation A. Customer submits a Quote Request Quote Request FIX Message Attributes Tag Value QuoteRequest (35=R) Execution Venue -> Dealer QuoteReqID(131) QuoteType(537) Symbol(55) SecurityID(48) SecurityIDSource(22) Tradeable(1) [N/A] ABCD Marketplace-assigned Identifier(M) SecurityXMLLen(1184) 5102 SecurityXML(1185) SecurityXMLSchema(1186) Side(54) Buy(1) OrderQty(38) 10,000,000 CDS FpML Payload General terms attributes Effective Date Scheduled Termination Date Index Reference Information CDX.NA.IG.19 Currency USD Settlement Entity Matrix SNAC Note: Message tables do not fully reflect wire format and are abbreviated for ease of reading Page 29

30 Appendix: Example 1 Bespoke CDS: Quote Negotiation B. Dealer Quotes Quote FIX Attributes Tag Value Note QuoteRequest (35=S) Dealer -> Execution Venue QuoteReqID(131) QuoteID(117) QuoteType(537) Tradeable(1) Symbol(55) [N/A] SecurityID(48) ABCD Reference the Instrument from QuoteRequest message (no repeat of FpML payload) SecurityIDSource(22) Marketplace-assigned Identifier(M) OrderQty(38) 10,000,000 Notional amount OfferPx(133) Customer buys; dealer offers. This is the MarketFixedRate This element contains the credit spread ("fair value") PriceType(423) Yield(9) Most CDS are priced at yield, some High Yield CDS are priced at Percentage(1) price Page 30

31 Appendix: Example 1 Bespoke CDS: Quote Negotiation C. Customer Counters Quote Response FIX Attributes Tag Value QuoteResponse (35=AJ) Execution Venue -> Dealer QuoteReqID(131) QuoteID(117) QuoteRespType(694) Counter(2) Symbol(55) [N/A] SecurityIDSource(22) Marketplace-assigned Identifier(M) SecurityID(48) ABCD ClOrderID(11) LastQty(32) 10,000,000 Side(54) Buy(1) LastPx(31) PriceType(423) Yield(9) Page 31

32 Appendix: Example 1 Bespoke CDS: Quote Negotiation D. Dealer Accepts Customer s Counter Execution Report FIX Attributes Tag Value Note ExecutionReport(35=8) Dealer -> Execution Venue OrderID(41) Reference the QuoteID ClOrderID(11) Echoed from the QuoteResponse Symbol(55) [N/A] SecurityID(48) ABCD Reference the QuoteRequest Instrument (no repeat of FpML payload) SecurityIDSource(22) Marketplace-assigned Identifier(M) ExecID(17) ExecType(150) Trade(F) OrdStatus(39) Filled(2) LastQty(32) 10,000,000 Notional executed amount LastPx(31) the credit spread ("fair value") PriceType(423) Yield(9) Most CDS are priced at yield, some High Yield CDS are priced at Percentage(1) price Side(54) Buy(1) Customer perspective Page 32

33 Appendix: Example 1 Bespoke CDS: Quote Negotiation E. Execution Venue Acknowledges Execution Acknowledgement FIX Attributes Tag Value ExecutionAck(35=BN) Execution Venue -> Dealer OrderID(41) ExecAckStatus(1036) Accepted(1) ExecID(17) Symbol(55) [N/A] SecurityIDSource(22) Marketplace-assigned Identifier(M) SecurityID(48) ABCD LastQty(32) 10,000,000 Side(54) Buy(1) LastPx(31) PriceType(423) Yield(9) Page 33

34 Appendix: Example 2 Bespoke CDS: Instrument Definition followed by Order Scenario: Dealer submits a bespoke CDS definition request Execution venue replies with a new instrument definition and identifier (i.e. SecurityID) Dealer sends an order for the bespoke CDS The order is filled Instrument: Effective Date: Scheduled Termination Date: Index Reference Information: CDX.NA.IG.19 Currency: USD Settlement Entity Matrix: SNAC sd Example 2 Execution Venue Dealer A. Dealer Submits a new Instrument Defintion Request B. Execution Venue sends Instrument Definition C. Dealer Sends an Order for the new Instrument D. Order is Executed (Filled) Direction: Dealer buys the bespoke CDS (dealer buys the protection and pays the fees) Page 34

35 Appendix: Example 2 Bespoke CDS: Instrument Definition followed by Order A. Dealer submits a new definition request for an identifier for the bespoke CDS Security Definition Request FIX Attributes Tag SecurityDefinitionRequest (35=c) SecurityReqID(320) SecurityReqType(321) Symbol(55) Value Dealer -> Execution Venue SecurityXMLLen(1184) 5102 SecurityXML(1185) SecurityXMLSchema(1186) Request Security identity for the specifications provided (name of the security is not supplied)(1) [N/A] 5/pretrade CDS FpML Payload General terms attributes Effective Date Scheduled Termination Date Index Reference Information CDX.NA.IG.19 Currency USD Settlement Entity Matrix SNAC Page 35

36 Appendix: Example 2 Bespoke CDS: Instrument Definition followed by Order B. Execution Venue replies with a new instrument definition and identifier Security Definition FIX Attributes Tag Value SecurityDefinition (35=d) Execution Venue -> Dealer SecurityReqID(320) SecurityResponseID(321) SecurityResponseType(323) Accept security proposal as-is(1) Symbol(55) [N/A] SecurityIDSource(22) Marketplace-assigned Identifier(M) SecurityID(48) ABCD SecurityXMLLen(1184) 5102 SecurityXML(1185) SecurityXMLSchema(1186) CDS FpML Payload General terms attributes Effective Date Scheduled Termination Date Index Reference Information CDX.NA.IG.19 Currency USD Settlement Entity Matrix SNAC This SecurityDefinition message may be sent to all the execution venue s clients that are subscribed to retrieve reference data updates Page 36

37 Appendix: Example 2 Bespoke CDS: Instrument Definition followed by Order C. Dealer sends an order for the new CDS New Order Single FIX Attributes Tag Value Note NewOrderSingle (35=D) ClOrdID Symbol(55) Dealer -> Execution Venue [N/A] SecurityID(48) ABCD Reference the QuoteRequest Instrument (no repeat of FpML payload) SecurityIDSource(22) Marketplace-assigned Identifier(M) Side(54) Buy(1) Dealer buy the new CDS (dealer buys the protection and pays the fees) OrderQty(38) 10,000,000 The notional amount OrdType(40) TimeInForce(59) <required> <optional> Price(44) <optional> Conditionally required upon OrdType value PriceType(423) Yield(9) Most CDS are priced at yield, some High Yield CDS are priced at Percentage(1) price Page 37

38 Appendix: Example 2 Bespoke CDS: Instrument Definition followed by Order D. The order is filled Tag ExecutionReport (35=8) OrderID(41) ClOrderID(11) Symbol(55) SecurityID(48) SecurityIDSource(22) ExecID(17) ExecType(150) OrdStatus(39) Execution Report FIX Attributes Value Execution Venue -> Dealer [N/A] ABCD Marketplace-assigned Identifier(M) Trade(F) Filled(2) LastQty(32) 10,000,000 LastPx(31) PriceType(423) Side(54) Yield(9) Buy(1) Page 38