What I am asking for is in each of the scenarios below what values
would I see for payerPartyReference and receiverPartyReference in each
swapStream if these are IRSs, or buyerPartyReference and
sellerPartyReference in the generalTerms and feeLeg if these are CDSs,
etc.. At the time we were building the messaging framework the meaning
behind these elements was considered to be well defined. I hope this
is still the case.
Robert
matthew.d.rawlings@xxxxxxxxxxxx wrote:
When the MWG was defining party
roles
for FpML it chose not to define roles for payer/buyer and
receiver/seller.
Can anyone remember why the MWG didn't define those roles?
Without a definition of something it
is not possible to say what it is.
Matthew Rawlings
+44 7917 596 827
For each of the scenarios below what is missing for me
is who would be specified as the payer/buyer and receiver/seller
parties
on each leg of the deal.
Thanks,
Robert
matthew.d.rawlings@xxxxxxxxxxxx
wrote:
Robert -
There are many possible scenarios where a Prime Broker takes on
different
combinations of roles. This is also the same as fund management, but
still
very rare in fund management. The exact roles the Prime Broker fulfils
are determined between the HF and PB, and they are free to vary them.
I'll
take one of the possible combinations for an explanation.
*In this example Hedge Fund "Firethorn" trades using the name
of Bank "Jodrell" as the creditor. Firethorn uses Jodrell's name
to access Jodrell's AAA credit rating, so Jodrell can get a better
price.
Firethorn wants an IRS on $/Yen, and gets quotes from the market. When
getting quotes Firethorn has to say Firethorn is the Executor, as the
market
price takes into account Firethorn's sophistication by charging a
higher
price. Firethorn's funds are the Beneficiary for its side of the Trade.
When getting quotes Firethorn also has to say either it is trading with
a AAA credit rating or give the name of Jodrell Bank. Jodrell is the
Creditor
on Firethorn's side of the trade because the name Jodrell will go on
the
Contract and carry the credit risk. Firethorn hits a quote from Bank
"Asur"
and a bargain is struck (trade executed). Firethorn is now the Executor
on its side of the trade because it executed the trade. Firethorn could
either decided to be the Affirmer and Confirmer for its side of the
trade
or it could pass it to someone else. In this case it decides to pass
the
affirming and confirming to one of its prime brokers Jodrell Bank. So
now
Jodrell is the Affirmer and Confrmer of the trade for Firethorn's side
of the trade. Firethorn runs two funds, Roof Fund and Remont Fund.
Firethorn
has instructed Asur and Jodrell to allocate the IRS 50:50 across the
funds.
Jodrell makes the affirmation and confirmation successfully with Asur.
For Settlement Jodrell passes the Settlement to its custody arm,
Jodrell
Custody Services. Firethorn has a Third Party Administrator named Bank
Chagos that runs accounting for its funds. Both the Prime Broker
(Jodrell),
and Chagos will do accounting for the Trade.
* names are anonymized. They are deliberately not meant to be passable.
The result is:
| Role
|
Firethorn's
Trade Side
- side #1
|
Asur's
Trade Side - side
#2
|
| Executor (executes the
deal)
|
Firethorn
|
Asur
|
| Creditor (credit risk and
contract name)
|
Jodrell
|
Asur
|
| Beneficiary
|
Remont Fund
Roof Fund
|
Asur
|
| Affirmer
|
Jodrell
|
Asur
|
| Confirmer
|
Jodrell
|
Asur
|
| Settler
|
Jodrell Custody Services
|
Asur
|
| Accountant
|
Chagos
Jodrell
|
Asur |
One alternative outcome would be if Jodrell's Proprietary Trading desk
had provided the best quote to Firethorn, and then Firethorn had
executed
the Trade with Jodrell.
| Role
|
Trade Side
#1
|
Trade Side
#2
|
| Executor (executes the
deal)
|
Firethorn
|
Jodrell
|
| Creditor (credit risk and
contract name)
|
Jodrell
|
Jodrell
|
| Beneficiary
|
Remont Fund
Roof Fund
|
Jodrell
|
| Affirmer
|
Jodrell
|
Jodrell
|
| Confirmer
|
Jodrell
|
Jodrell
|
| Settler
|
Jodrell Custody Services
|
Jodrell
|
| Accountant
|
Chagos
Jodrell
|
Jodrell |
One alternative outcome would be if a fund manager "Denis" executed
with Firethorn. They were acting for the Mold Pension Fund, and using
Trust
Bank International (TBI) as their agents for their Middle Office and
Operations,
except for Trade Affirmation which they kept in house.
| Role
|
Trade Side
#1
|
Trade Side
#2
|
| Executor (executes the
deal)
|
Firethorn
|
Denis
|
| Creditor (credit risk and
contract name)
|
Jodrell
|
Mold Pension Fund
|
| Beneficiary
|
Remont Fund
Roof Fund
|
Mold Pension Fund
|
| Affirmer
|
Jodrell
|
Denis
|
| Confirmer
|
Jodrell
|
TBI
|
| Settler
|
Jodrell Custody Services
|
TBI
|
| Accountant
|
Chagos
Jodrell
|
TBI |
To answer Robert's questions:
1. Agency
is a legal term used to define a contractual relationship where the
Agent
may enter into agreements with 3rd Parties on behalf of a Principal.
Most
forms of agency have nothing to do with agency trades. Appointing a
prime
broker as your agent for confirming trades has no overlap with agency
trading.
Power of attorney and Agency Law are not equivalent - for example
Jodrell
is Firethorn's agent, but does not have power of attorney.
2. Agency
agreements have a specific scope. Firethorn appointed Jodrell as agent
for Confirming that trade. Firethorn also appointed Chagos as agent for
Accounting. To say "Jodrell is Firethorn's agent" is not specific
enough. In this case Jodrell was agent for a number of Roles.
3. The
beneficiaries may or may not be known at the time of the trade. In some
jurisidictions allocations must be known in advance to provent "baby
funds" or "baby syndicate" fraud. Normally there is a KYC
process for significant business.
4. The
creditors may or may not be known at the time of the trade. Some
markets
just want the characteristics, such as the credit risk, others don't
care,
and some want specific names. Invariably what people always want to
know
is the Executor, because they want to know who is doing what in the
market
as this affects price.
I answered the questions. I have one point to make of my own: At no
point
in any message flow do you ever see all these roles. There should be
separate
messages for Trade Execution, Affirmation, Confirmation, Accounting,
Custody,
Settlement, Payment, Quotes, Orders, etc.. This is only the global
picture
for a 'Trade'. We would be better off saying which roles appear in
which
business processes. The reason we see them all here is because the
Business
Process part of FpML is immature, and so we have people sending
"TradeCreated,
TradeAmended" for far too many business processes. If we could fix
the business proces then we'd still have TradeSide, we just wouldn't
use
all of it in every Trade Message.
Matthew Rawlings
+44 7917 596 827
Matthew,
Three questions for my own clarity regarding JPM taking both sides of a
trade:
1) Is this JPM acting as agent for Party A entering an agreement
with
JPM acting as agent for Party B?
2) Is it known that one, or both sides are JPM acting as agent?
3) Are none, either, or both beneficiaries known at the time of the
trade?
Thanks.
Robert
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--
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Brook Path Partners, Inc.
60 State Street
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Tel: 617-988-2729 Ext. 00215
Web: http://www.brookpath.com
This communication is for informational purposes only. It is not
intended as an offer or solicitation for the purchase or sale of any
financial instrument or as an official confirmation of any transaction.
All market prices, data and other information are not warranted as to
completeness or accuracy and are subject to change without notice. Any
comments or statements made herein do not necessarily reflect those of
JPMorgan Chase & Co., its subsidiaries and affiliates.
This transmission may contain information that is privileged,
confidential, legally privileged, and/or exempt from disclosure under
applicable law. If you are not the intended recipient, you are hereby
notified that any disclosure, copying, distribution, or use of the
information contained herein (including any reliance thereon) is
STRICTLY PROHIBITED. Although this transmission and any attachments are
believed to be free of any virus or other defect that might affect any
computer system into which it is received and opened, it is the
responsibility of the recipient to ensure that it is virus free and no
responsibility is accepted by JPMorgan Chase & Co., its
subsidiaries and affiliates, as applicable, for any loss or damage
arising in any way from its use. If you received this transmission in
error, please immediately contact the sender and destroy the material
in its entirety, whether in electronic or hard copy format. Thank you.
Please refer to http://www.jpmorgan.com/pages/disclosures for
disclosures relating to UK legal entities.
--
Robert Stowsky
President & CEO
Brook Path Partners, Inc.
60 State Street
Suite 700 Boston, MA 02109
Tel: 617-988-2729 Ext. 00215
Web: http://www.brookpath.com
|