RE: FpML-CD Adding support for Fixed Recovery Swaps -- Call for Comments Closes Monday, June 23rd

[Henri Pegeron <hpegeron@xxxxxxxx>]

Ben/All,
Apologies for not being to attend this weeks call but I'm glad we were
able to come to a consensus on the Fixed Recovery Swap proposal.

Did we happen to discuss an expected date for the next Trial Recommendation
build for 4.4?

Regards, 
Henri Pegeron
------------------------------------------------------------
The Depository Trust & Clearing Corporation 
DTCC Deriv/SERV : Business Analysis & Design
55 Water Street - New York, NY 10041
Phone: + 1 (212) 855 1682
Fax: + 1 (212) 855 1020

"Ben Lis" <Ben.Lis@xxxxxxxxx>
Sent by: cdwg@xxxxxxxx

06/18/2008 10:30 AM

Please respond to
cdwg@xxxxxxxx

To	<cdwg@xxxxxxxx>
cc
Subject	RE: FpML-CD Adding support for Fixed Recovery Swaps -- Call for Comments Closes Monday, June 23rd

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: cdwg@xxxxxxxx [mailto:cdwg@xxxxxxxx]
On Behalf Of Henri Pegeron
Sent: Tuesday, June 10, 2008 10:03 PM
To: cdwg@xxxxxxxx
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:
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
------------------------------------------------------------
The Depository Trust & Clearing Corporation 
DTCC Deriv/SERV : Business Analysis & Design
55 Water Street - New York, NY 10041
Phone: + 1 (212) 855 1682
Fax: + 1 (212) 855 1020

"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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