Workshop on Trade Notification Workflow

1
Workshop on Trade Notification Workflow
ISDA Offices, New York, 8 September 2006
2
Scope and quick review (1/2)

• FpML Closed User Group being finalized
• First pilots identified
• Formal commitments pending
• Asset classes to include IRS and CDS
• Two workflows identified for pilot
• Trade notification
• Portfolio reconciliation

3
Scope and quick review (2/2)

• Profile assessments sent out to 10 pilot
  institutions
• London meeting planned for 20 September
• Pilot agreements to be sent out mid-October
• Service description being prepared (end October)
• Target for pilot start -- end of 2006

4
Asset class details

• Credit default swaps
• Single names
• Index CDS
• Index tranches
• Baskets
• Basket tranches
• Interest rate swaps
• Single currency (vanilla, OIS)
• Cross currency (vanilla, OIS)
• Caps
• Floors
• Collars

5
IRS and CDS post-trade flows
1
Trade confirmation
2
Pre-confirm up-front payments
Dealer
Dealer
3
Rate reset (IRS only) and/or payment advice
4
Amendments
5
Assignments
6
Terminations
7
Cashflow reconciliation
8
Portfolio reconciliation/valuation
9
Collateral management
10
Clearing and settlement
6
IRS and CDS post-trade flows
Execution notice Pre-confirmation
1
2
Allocation instruction
Investment manager/ Hedge fund
Dealer
4
Pre-confirmation of near-date cash payments
5
Trade confirmation (individual accounts)
3
9
6
Amendment
7
Pay/receive instruction
Re-allocation
Trade notification
8
Rate reset (for IRS only) and/or payment advice
10
Assignment
11
Early termination (partial and full)
Custodian or Accounting Agent or Prime Broker
(3rd pty)
7
IRS and CDS post-trade flowsCashflow and
portfolio reconciliation
1
Cashflow reconciliation
2
Portfolio reconciliation/MTM valuation (daily)
Investment manager/ Hedge fund
Dealer
3
Portfolio reconciliation/MTM valuation (monthly)
6
4
5
Portfolio reconciliation/ MTM monthly
Portfolio reconciliation/ MTM monthly
Portfolio reconciliation/ MTM daily
Accounting agent
Custodian or Prime Broker (3rd pty)
8
Scenarios

• New
• Amend
• Increase
• Novate
• Terminate
• Full termination
• Partial termination

9
Scenario combination examples

• New
• New / Amend
• New / Amend / Terminate (Full)
• New / Increase
• New / Novate
• New / Terminate (Partial)
• New / Increase / Terminate (Full)
• New / Increase / Novate

10
New (Trade Notification) (1)
New
Investment manager
Custodian

• Custodian receives trade notification for a new
  swap from IM
• Does the custodian have to send an
  acknowledgment?

11
New / Amend (2)
New
Investment manager
Custodian
Amend
12
New / Amend / Terminate (Full) (3)
New
Investment manager
Custodian
Amend
Terminate
13
New / Increase (4)
New
Investment manager
Custodian
Increase
14
New / Novate (5)
New
Investment manager
Custodian
Novate
15
New / Terminate (Partial) (6)
New
Investment manager
Custodian
Terminate
16
New / Increase / Terminate (Full) (7)
New
Investment manager
Custodian
Increase
Terminate
17
New / Increase / Novate (8)
New
Investment manager
Custodian
Increase
Novate
18
Exceptions and corrections

• What if you sent a message in error?
• Manual processing?
• Exception handling?
• Correction message?
• How much detail in correction message? Just
  trade id or more?

19
Service description

• Eligibility and participant information
• Service components
• Messaging details
• Standards details
• Interface details
• Features and functions
• Roles and responsibilities (SWIFT and
  participants)
• Rulebook
• Instrument and workflow restrictions
• Market practices
• Usage rules

20
Some other questions/issues

• Validation rules (phase 2) how strict
• Reject all FpML business rule violations (plus
  more)?
• Pick and choose rules by product?
• Dont reject --- but indicate it failed
  validation?

21
Pilot readiness discussion

• Who
• What
• When
• With whom?
• Meetings ongoing for technical review and
  readiness details with all pilots