FpML/XML Payload Definition for IRS & CDS (Pre-Trade) Date: 29 May, 2012 Version 8.1 Draft Page 1
Agenda Change Summary Review of Open Actions Objectives Requirement Summary FIX and FpML Integration Requirements Scope IRS Samples Discussion Points Identified Business Attributes of IRS Timeline Remaining Steps Appendix I: Modelling Approach Decision Appendix II: Definition Approach - IRS Appendix III: Schema Proposal Page 2
Change Summary Date Version Detail 21/May/2012 7.0 Extended scope added new tenors Added slides: FIX and FpML Integration Multi-leg FIX and FpML Integration Multi-leg Switch Example FIX and FpML Integration Multi-leg Butterfly Example Added two IRS examples Added slide: Open Actions 29/May/2012 8.0 Existing examples mapped to products Added slide for discussion points Updated slides 8, 9 and 10 to include the PriceType field Page 3
Review of Open Actions No. Action Created Owner Comments 1 Update schema to support additional examples provided (Example 10: Different Fixed Calculation Pay Dates Adjustment) 21 May Task Force In progress 2 Map the existing examples to particular products and venues 21 May ETS In progress 3 Further analyze the early termination provision 21 May ETS In progress 4 Update the multi-leg examples to include the PriceType (423) field 21 May ETS Completed Page 4
Objectives 1. Creation of a lite version of the XML Schema to define IRS & 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 (months) 3. Do not create any dependencies on successful completion of other initiatives such as UPI Page 5
Requirement Summary Deliverable XML payload definitions for pre-trade to be used within FIX messages to define IRS and 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 XML 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
FIX and FpML Integration Requirements Best Practices Guide for IRS and CDS Recommends Parties & direction FIX trading convention for outright vanilla IRS The Buyer of an IRS is known as the Fixed Rate Payer (as defined in the IRS contract) The Seller of an IRS is known as the Floating Amount Payer (as defined in the IRS contract) The definition of a Standard Outright Instrument should be supplied within a SecurityXML component block The diagram provides the attributes that are available as part of the FIX Quote and QuoteRequest messages: 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) 1000000 FpML Payload Instrument SecurityID(48) ID1 SecurityXMLLen(1184) SecurityXML(1185) SecurityXMLSchema(1186)?? Direction Specify the attributes Side(54) required with in the XML payload Buy for the pre-trade messages 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 Page 7
FIX and FpML Integration Multi-leg Multi-leg instruments based on IRS (and/or CDS) Each leg is an stand-alone IRS (or CDS) The Instrument definition of each leg of a multi-leg is send in a separated XML payload Each of the XML payloads is send once; Additional FIX message should reference the XML payload by providing its SecurityID in the LegSecurityID(602) tag. FIX Messages Business attribute FIX field(s) Example Buyer and Seller Parties Bank 1 Direction Side Buy Number of legs NoLegs(555) 2 Spread value BidPx(132) Or Price(44) 1.42 OfferPx(133) Pricing type PriceType(423) Spread(6) Reference notional amount OrderQty(38) 1000000 For each leg the following attributes are set: Leg Direction LegSide(624) Buy Fixed Rate LegPrice(566) (optional) 2.38 Notional Amount ratio LegRatioQuantity(623) 1.0 The actual notional amount for the leg is the product of: OrderQty(38) * LegRatioQuantity(623) Instrument LegSecurityID(602) ID1 LegSecurityXMLLen? LegSecurityXML Specify the attributes required with in the XML payload for the pre-trade messages LegSecurityXMLSchema Potential task for 2012 FpML Payload? Page 8
FIX and FpML Integration Multi-leg Switch Example Switch IRS example: FIX Messages Business attribute FIX field(s) Example Buyer and Seller Parties Bank 1 Direction Side Buy Number of legs NoLegs(555) 2 Spread value BidPx(132) OfferPx(133) Or Price(44) 1.42 Pricing type PriceType(423) Spread(6) Reference notional amount OrderQty(38) 1000000 Legs Leg 1 Leg 2 Leg Direction LegSide(624) Buy Sell Notional Amount ratio LegRatioQuantity(623) 1.0 1.0 Instrument LegSecurityID(602) ID1 ID2 LegSecurityXMLLen LegSecurityXML LegSecurityXMLSchema?? FpML Payload 1 FpML Payload 2? Potential task for 2012 Specify the attributes required with in the XML payload for the pre-trade messages? Page 9
FIX and FpML Integration Multi-leg Butterfly Example Butterfly IRS example: FIX Messages Business attribute FIX field(s) Example Buyer and Seller Parties Bank 1 Direction Side Buy Number of legs NoLegs(555) 3 Spread value BidPx(132) OfferPx(133) Or Price(44) 1.42 Pricing type PriceType(423) Spread(6) Reference notional amount OrderQty(38) 1000000 Legs Leg 1 Leg 2 Leg 3 Leg Direction LegSide(624) Buy Sell Buy Notional Amount ratio LegRatioQuantity(623) 0.5 1.0 0.5 Instrument LegSecurityID(602) ID1 ID2 ID3 LegSecurityXMLLen LegSecurityXML LegSecurityXMLSchema??? FpML Payload 1 FpML Payload 2 FpML Payload 3 Potential task for 2012 Specify the attributes required with in the XML payload for the pre-trade messages??? Page 10
Scope Term Description Examples Outright Vanilla IRS Following types of IRS required to be covered initially IRS that consist of exactly two legs: 1. Fixed Rate leg 2. Floating Rate leg The Fixed rate notional amount is always the same as the Floating rate notional amount There are no fees (neither initial nor final fees) Fixed vs. Float single CCY (G8) Fixed vs. Float cross CCY (G8) OIS (G8) Excluded from 1 st phase Inflation Non G8 Float Vs. Float Amortising Swaps IRS USD Floating rate benchmark : LIBOR 1M/3M/6M, and OIS. Tenor: 1-10Y, 12Y, 15Y, 20Y, 25Y, 30Y, 40Y and 50Y for LIBOR 1-12M, 15M, 18M, 2Y for OIS. IRS EUR Floating rate benchmark: EURIBOR 1M/3M/6M/12M and OIS EONIA Tenor:, 1-20Y, 25Y, 30Y, 40Y and 50Y for EURIBOR 3M/ 6M. 3-12M, 15M, 18M and 24M for EURIBOR 1M. 2-10Y, 12Y, 15Y, 20Y, 25Y and 30Y for EURIBOR 12M and OIS EONIA (long). 1-3W, 1-12M, 15M, 18M and 21M for OIS EONIA (short). IRS GBP Floating rate benchmark: LIBOR 3M/6M and OIS SONIA Tenor: 1-20Y, 25Y, 30Y, 40Y and 50Y for LIBOR 3M/6M. 1-3W, 1-12M and 15M for OIS SONIA IRS JPY Floating rate benchmark: LIBOR 6M Tenor: 18M, 1-10Y, 12Y, 15Y, 20Y, 25Y, 30Y and 40Y Note Any offset to the Floating Rate interest is part of the product definition and expected to be part of the FpML payload (an example for a benchmark may be: Libor + 3% ) Page 11
IRS Examples Standard Examples Products Covered 1) Standard IRS, Fixed Vs. Floating Single Currency LIBOR 1M 1-10Y, 12Y, 15Y, 20Y, 25Y, 30Y, 40Y 2) Standard IRS, Fixed Vs. Floating Cross Currency USD LIBOR 3M 1-10Y, 12Y, 15Y, 20Y, 25Y, 30Y, 40Y LIBOR 6M 1-10Y, 12Y, 15Y, 20Y, 25Y, 30Y, 40Y 4) Compounding EURIBOR 1M 3-12M, 15M, 18M and 24M 6) Termination date modified (+10 day) 7) Termination date modified (-10 day) EUR EURIBOR 3M 1-20Y, 25Y, 30Y, 40Y and 50 EURIBOR 6M 1-20Y, 25Y, 30Y, 40Y and 50Y 8) Effective date modified (+10 days) EURIBOR 12M 2-10Y, 12Y, 15Y, 20Y, 25Y and 30Y 9) Early Termination Provision GBP LIBOR 3M LIBOR 6M 1-20Y, 25Y, 30Y, 40Y and 50Y 1-20Y, 25Y, 30Y, 40Y and 50Y 10) Different Fixed Calculation Pay Dates Adjustment JPY LIBOR 6M 18M, 1-10Y, 12Y, 15Y, 20Y, 25Y, 30Y and 40Y Bloomberg input not yet received Page 12
IRS Examples OIS Examples Products Covered USD OIS 1-12M, 15M, 18M, 2Y 3) Standard OIS 5) OIS for 15 months EUR EONIA short EONIA long 1-3W, 1-12M, 15M 2-10Y, 12Y, 15Y, 20Y, 25Y and 30Y GBP SONIA 1-3W, 1-12M and 15M Bloomberg input not yet received Page 13
Discussion Points Is the Early Termination Provision part of the instrument definition? Which of the following cross currency types are in scope? - Traditional - Mark-to-market FX resettable Can the final stub be de-scoped? Is there a requirement to specify the different set of business centres for calculation period end date adjustments vs. payment date adjustment? Page 14
Identified Business Attributes of IRS Attributes of Outright Vanilla IRS products For each leg (either Fixed or Floating): Effective payment date Either absolute or relative day Date adjustments Termination payment date Either absolute or relative day Dates adjustments Periodic payments First & Last periodic payment day Period Date adjustments Calculations for the periodic payment Calculations dates & adjustments Period Day Count Initial Stub Final Stub Currency Rate calculations (Floating only) Benchmark Compounding Provisions: Early termination Supported IRS instruments: Fixed vs. Float single CCY (G8) Fixed vs. Float cross CCY (G8) OIS (G8) Page 15
Timeline FpML Task Force (Pre-trade) IRS CDS 02-Apr Kick off Kick off 11-Apr 16-Apr 23-Apr 30-Apr 14-May 21-May 29-May?06-Jun?11-Jun?18-Jun?25-Jun?2-July?9-July Review of modelling approach Finalize modelling approach Review product attributes Review product attributes Review product attributes Review product attributes Initial review of the Schema Review of schema Final Review of the Schema Review product attributes Review product attributes Initial review of the Schema Final Review of the Schema Kick off FPL-FpML Collaboration Working Group (TBC) Page 16
Remaining Steps 1. Finalise Schema Close any outstanding actions Finalise all discussion points Any additional amendments 2. Convert examples in line with the final schema Validate schema against examples 3. Move to FPL-FpML Working Group Any Other Business: Re-schedule next week s meeting (4 th and 5 th June UK Holiday) Suggest Wednesday 6 th June at 17:00 BST (12:00 EDT) Page 17
Appendix I: Modelling Approach Decision Decide approach for modelling - A or B? (Required / Optional / Not Required) A. Complete Model Definition approach Explicit Schema definition of pre-trade version of IRS and CDS B. Variance Approach Provide a reference to the original standard Instrument (reference product) and a list of attributes the can be modified by the user List of attributes that can be changed for IRS (as supported by Execution Venues today) Effective date, Maturity date, Day Count convention (e.g.: 30/360, ACT/365 etc.), Payment Frequency (e.g.: Annual, Semi, Quarterly), Roll day convention (e.g.: IMM, FRN), Compound (e.g. None, Flat, Straight) and Floating Spreads Decision was made to start with the Complete Model Definition approach (16/Apr/2012) Page 18
Appendix II: Definition Approach - IRS Steps for Defining the Full Approach for IRS a) Define the products required by execution venue based on the business attributes Fixed Vs. Float Single Currency IRS Fixed Vs. Float Cross Currency IRS OIS b) Identify the business attributes of IRS (classified under outright vanilla IRS) c) Map business attributes to corresponding FpML attributes Define the XML schema based on the input from execution venue d) Final review of the Schema by the task force e) Sign off by FpML task force Page 19
Appendix III: Schema Proposal Removed features from Original FpML 5.2 Confirmation Schema General Section: ProcessingIndicator.model onbehalfof originatingevent tradeheader pricenotation portfolio PartiesAndAccount.model Product Section: bondoption brokerequityoption bulletpayment capfloor commodityforward commodityoption commodityswap correlationswap creaditdefaultswapoption dividentswaptransactionsupplement equityforward equityoption equityoptiontransactionsupplemnt equityswaptransactionsupplemnt fra fxdigitoption fxoption fxsingleleg fxswap instrumenttradedetails returnswap Strategy swaption termdeposit varianceoptiontransactionsupplemnt varianceswap varianceswaptransactionsupplemnt Non-Product (trade) Section: otherpartypayment brokerpartyreference calculationagent.model determiningparty hedgingparty collateral documantation governinglaw allocations CDS Section: buyerseller.model IRS Section: Suggest to remove: PayerReceive.model initialvalue (multiple occurrences) stepvalue (multiple occurrences) notionalstepamount notionalsteprate amount initialrate Page 20