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Re: Agency trades
payerPartyReference and sellerPartyReference
are well defined. payerPartyReference would point to one tradeSide, and
sellerPartyReference would always point to the other tradeSide.
If you didn't use tradeSide you would
then what you would see would depend on which business process you were
in (this is what Brian said). In the confirmation process you see the Creditor
Party, because that is the Party whose name appears on the contract.
Matthew Rawlings
+44 7917 596 827
Robert Stowsky <rstowsky@xxxxxxxxxxxxx>
Sent by: mtf@xxxxxxxx
04/04/2008 19:15
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Subject
| Re: Agency trades |
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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
This communication is for informational purposes only.
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--
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
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
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.