Re: FpML-CD Adding support for Fixed Recovery Swaps

[Henri Pegeron <hpegeron@xxxxxxxx>]

Jamie,
This proposal looks good - DTCC has also gotten feedback that CDS Recovery
Swaps will need to be supported in FpML and this field would allow users
to submit confirms with a fixed recovery as opposed to an explicit cash
settlement amount.  

One comment I have is around the existing "currency" component
of the cashSettlementAmount.  Right now, FpML is allowing the cashSettlementAmount
to have a currency that is different than that of the Notional amount.
 If we allow a choice between the amount or a fixed recovery factor,
we should consider either:

1. making it explicit in the annotation that the currency will also be derived from the Floating Rate Payer Calculation Amount.
2. making "recoveryFactor" a complexType and include both the rate and the currency.
   

I believe option one would be
easier to implement and probably less contentious (since the 2nd would
involve making or reusing a type).

Any thoughts?

Regards,
Henri Pegeron
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"Orme, Jamie" <Jamie.Orme@xxxxxx>
Sent by: cdwg@xxxxxxxx

06/10/2008 03:44 PM

Please respond to
cdwg@xxxxxxxx

To	<cdwg@xxxxxxxx>
cc
Subject	FpML-CD Adding support for Fixed Recovery Swaps

CDWG,

We would like to update the creditDefaultSwap schema to fully support
Fixed Recovery swaps.

Currently the cashSettlementTerms only allows for Fixed Recovery
where an amount is specified:

<cashSettlementTerms>
        <cashSettlementAmount>
                <currency>USD</currency>
                <amount>1500.0</amount>
        </cashSettlementAmount>
</cashSettlementTerms>

We would like to extend this so that a "recovery factor", if
applicable, could be included instead.  The factor is a fraction that
will then be used to calculate the amount of recovery on a Credit Event.

Within our paper flows, we currently confirm this as follows:

1.Settlement Terms:

Terms Relating to Cash Settlement:

Settlement Method: Cash Settlement

Settlement Currency: The currency of denomination of the Floating Rate
Payer Calculation Amount

Recovery Factor [0.50]

Cash Settlement Amount (1 minus the Recovery Factor) multiplied by the
Floating Rate Payer Calculation Amount

Therefore, we propose to use a new 'FixedRecovery.model' group that
will provide a choice between a fixed settlement amount or a recovery factor:

Based on our confirm "snippet", this would then be modelled in FpML as follows:

<cashSettlementTerms>
       <recoveryFactor>0.5</recoveryFactor>
</cashSettlementTerms>

To see this change in context, please see the attached schema change.

Could we get together to discuss the above?

Many Thanks

Jamie

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Attachment: fpml-cd-4-4.xsd
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