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Workshop on Trade Notification Workflow

ISDA Offices, New York, 8 September 2006. Workshop on Trade Notification Workflow. 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

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Workshop on Trade Notification Workflow

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  1. ISDA Offices, New York, 8 September 2006 Workshop on Trade Notification Workflow

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

  11. New / Amend (#2) New Amend Investment manager Custodian

  12. New / Amend / Terminate (Full) (#3) New Amend Investment manager Custodian Terminate

  13. New / Increase (#4) New Increase Investment manager Custodian

  14. New / Novate (#5) New Novate Investment manager Custodian

  15. New / Terminate (Partial) (#6) New Terminate Investment manager Custodian

  16. New / Increase / Terminate (Full) (#7) New Increase Investment manager Custodian Terminate

  17. New / Increase / Novate (#8) New Increase Investment manager Custodian 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? • Don’t 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

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