We discussed support for Fixed Recovery
Swaps on today’s CDWG call.
The consensus on that call was that we
should move forward in an expedited manner with the proposal that Jamie has
submitted to the CDWG (see first mail on the stream below). To the point that
Henri raises, the consensus of the members on the call was to go with option
(1) making it explicit in the annotation that the currency will be derived from
the Floating Rate Payer Calculation Amount.
Pending Coordination Committee approval,
we will publish this change out in the second trial recommendation of FpML 4.4
If you have outstanding questions or
concerns on the proposal for adding support for Fixed Recovery Swaps, please
raise them on this e-mail stream before close of business Monday, June 23rd
2008. If no unaddressed concerns are raised by this time, we will move forward
with this change.
Thanks,
Ben Lis
Head of Product Management &
Integration
T-Zero
212.323.6041
www.tzero.com
From:
Sent: Tuesday, June 10, 2008 10:03
PM
To:
Subject: Re: FpML-CD Adding
support for Fixed Recovery Swaps
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:
- making it explicit in the
annotation that the currency will also be derived from the Floating Rate
Payer Calculation Amount.
- 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
------------------------------------------------------------
The Depository Trust & Clearing Corporation
DTCC Deriv/SERV : Business Analysis & Design
Phone: + 1 (212) 855 1682
Fax: + 1 (212) 855 1020
|
"Orme, Jamie"
<Jamie.Orme@xxxxxx> 06/10/2008 03:44 PM
|
|
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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