Trade Notification by HC120918142419


									                                                         ISDA and SWIFT – FpML Closed User Group
                                    Trade Notification Workflow Meeting Highlights – 8 September 2006

Trade Notification Workflow Meeting Highlights

      Myra Moore                              Barclays Global Investors
      Philip Nikolov                          Goldman Sachs Asset Management
      Ann Bissell                             Investors Bank & Trust
      Michael Burg                            Mellon Bank
      John Booth                              Northern Trust
      Tricia Carney, Jason Brasile            State Street Bank
      Matt Hawkins                            State Street IMS
      Patrick Purington                       Western Asset Management
      Brian Lynn                              Global Electronic Markets
      Karel Engelen, Marc Gratacos,
       and Irina Yermakova                    ISDA
      Bob Chomut, Marie-Paule Dumont,
       and Malene McMahon                     SWIFT

1. Instruments and life-cycle events
Following brief introductions and an overview of the FpML CUG pilot, we reviewed the
instruments and trade life-cycle events to be included in phase 1 of the pilot. They are listed
               Credit default swaps
                        Single names
                        Index CDS
                        Index tranches
                        Baskets
                        Basket tranches
               Interest rate swaps
                        Single currency (vanilla, including OIS and basis swaps)
                        Cross currency (vanilla, including OIS and basis swaps)
                        Caps
                        Floors
                        Collars
       Post-trade life-cycle events:
                        New
                        Amend
                        Increase
                        Novate (Partial and Full)
                        Terminate (Partial and Full)

cf915021-941f-449e-8c88-03690d30096d.doc                                                  Page 1
                                                         ISDA and SWIFT – FpML Closed User Group
                                    Trade Notification Workflow Meeting Highlights – 8 September 2006
The group agreed on the list of instruments but some discussion followed on whether or not
to include AMEND and INCREASE as a life-cycle events. It appears that most investment
managers do not ever AMEND or INCREASE a trade. If there is a change, it is likely be
treated as a cancel and re-book than a real amendment to a trade.
Decision pending: Do we still include AMEND and INCREASE as a life-cycle events for
the pilot? The participants in the meeting agreed to go back to their respective institutions
and do some checking.

2. Workflow, scenario and message review
A number of different scenarios (combinations of life-cycle events above) were reviewed in
detail along with their corresponding example messages that were prepared by ISDA.
Observations, highlights and any pending decisions are summarised below.

2.1 Cash settlement information
There was some discussion about whether or not cash settlement information is included in
the FpML messages. Most agreed that if there were any up-front payments or fees that
settlement information about these payments needed to be included in the trade notification
messages. There was less agreement on whether or not cash settlement information for any
ongoing cash flows should be included since many rely on standing settlement instructions.
Consensus was to have the option to include settlement instructions for up-front payment and
fees (FpML/ISDA to look into required changes in FpML if any to accomplish this). It needs
to be agreed in the rule book if this will be a requirement or an option in the pilot.
Follow-up action: Review cash settlement information in FpML messages in some
additional detail with ISDA and a few pilot participants.

2.2 Acknowledgments
There was a discussion on whether or not any of the messages in any of the scenarios needed
to be formally acknowledged by the custodian. There was also some discussion about the
custodian sending back some ‘enriched’ messages (additional reference information, etc.) It
was generally agreed that this was not required.

2.3 Linking messages together
There was a discussion around the ‘conversation ID’ in the FpML message header and how
this might be used to help link messages to one another. Normally, this linking is done
through the ‘trade ID’ field. It was agreed that the rulebook should provide some guidance
on how to use the ‘conversation ID’ field.

2.4 Long form vs. short form

cf915021-941f-449e-8c88-03690d30096d.doc                                                  Page 2
                                                         ISDA and SWIFT – FpML Closed User Group
                                    Trade Notification Workflow Meeting Highlights – 8 September 2006
We reviewed the fact that the interest rate swap FpML messages reflect all the trade details
in the confirmation. Credit default swap messages can be represented in a ‘long form’ or in a
‘short form’ format.. There was a general consensus that perhaps ‘long form’ would be best
for the trade notification messages because the ‘short form’ does not include all economic
details of the trade and relies on the associated Master Confirmation. Master Confirmation
information is currently not known to the custodians and there is no way currently to
exchange this information electronically.
Decision pending: Do we use the short or long form for the credit default swap trade

2.5 Message names
It was suggested that the ‘new’ trade notification reflect the word new in the name of the
message. ISDA will review the message names and change as appropriate.

2.6 FpML messages for correcting mistakes
FpML has three basic message types that will be used for the notification messages:
      Create
      Modify
      Cancel
These messages are not business-level events, but message-level actions. For example, a
NewTradeNotification would be a ‘create’ message. If you sent a NewTradeNotification
message in error, you can either ‘modify’ or ‘cancel’ it with the modify and cancel messages
(which would be named ‘ModifyNewTradeNotification’ and ‘CancelNewTradeNotification’
respectively). The terms NEW, AMEND, NOVATE, INCREASE and TERMINATE are
business-level events and not message-level actions.
Follow-up action: ISDA and SWIFT to create a message matrix/list to be circulated to the
pilot group to clarify the differences between business-level events and message-level

2.7 Terminations
FpML messages for terminate either contain all the details of the trade being terminated, or
just the trade ID. It was agreed that all the details are required for a termination.

2.8 Rejection messages
FpML has an existing suite of ‘rejection’ messages that could be used if there is something
wrong with the message that is received by the custodian. Brian explained some of these
messages during the discussion. It was generally agreed that these messages would not be
part of the initial phase of the pilot. We may consider adding them at a later stage.

cf915021-941f-449e-8c88-03690d30096d.doc                                                  Page 3
                                                         ISDA and SWIFT – FpML Closed User Group
                                    Trade Notification Workflow Meeting Highlights – 8 September 2006

3. Other issues
Malene briefly reviewed the service description and rulebook. These will likely be
completed before the end of October and sent to all pilot participants.
A discussion about FpML’s validation rules (and other possible validation) followed. Even
though SWIFT will not validate FpML during the first phase of the pilot, we should still plan
to implement ‘validate-able’ messages in the first phase. A comment was made that not
everyone agreed with (or likes) all of FpML’s existing validation rules.
Follow-up action: A review of FpML’s validation rules (and other possibly stricter rules)
will take place in the coming weeks.


cf915021-941f-449e-8c88-03690d30096d.doc                                                  Page 4

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