ISDA/ FpML Product Identity and Type Andrew Paul Parry

1. ISDA/FpML Product Identity and TypeAndrew Paul Parry Apr 2013

2. Agenda • Executive Summary • ISDA EDD 2011 Product Identity and Feature Tags • Implementation: Structure and Values • Product Definition, UPI Generation • Unique Values per Product, UPI Generation Alternative • CFTC: FX Feature, Narrow Index, Strategy, High Delta • Appendices: ISDA Product Identity and Feature Tags

3. Executive Summary • Product Identity and Type are important for both Business and Regulatory reasons, because they allow us to understand the possible economic effects, and how these are being used • We firstly need an implementation approach to comply with CFTC Part 43 and Part 45 for bespoke and complex products by 30 June 2013 • Unique Product Identity (UPI) will satisfy Regulators and avoid use of ISDA Product Taxonomy (Classification) as a proxy for UPI • Bespoke and complex Products will be reported using a Generic Product, which contains key economic facts applicable to many Product Identities • This proposal implements ISDA EDD 2011 Product Identity and Type, which are used for UPI generation, as a step towards full Electronic Publication • We are not implementing Risk Allocation, or any other parts of the ISDA EDD 2011 Definitions, which will be covered in future phases

4. ISDA EDD 2011 Product Identity and Feature Tags

5. Implementation: Structure, Values • Implementation follows the Specification you have seen on the previous slide, using Hierarchy (Tiers), Sets of Names, and Sets of Values for each Name • Structure: Hierarchy • Transaction Type: Top Level • Leg Type: One to many Legs • Convention Type: (Settlement, Valuation, ...) • Structure: Set of Names • Set of Product Identity Tags (Matrix, Market, Party, Primary, Performance, Underlier) • Set of Product Feature Tags (Settlement, Dividend, Valuation, ... Linkage) • Values: Set of Values for each Name • Example: Primary Feature(Swap, Option, Forward)

6. Product Definition, UPI Generation • Product Definition file with Product Identity and Feature Tags • Generate UPI from Product Definition file using a Hash Function (SHA1)

7. Unique Values per Product, UPI Generation Alternative • Index Variance Swap on previous slide used ISDA 2011, which ensures a unique set of values by assigning each Product a unique Matrix Feature • We always need a unique set of values to ensure we can generate a UPI, however the Hash Function (SHA1) approach only understands raw text, including whitespace, carriage returns ... instead of the business values • An alternative approach to UPI is “globally unique identifiers” or UUID, which is associated with each product definition file. This approach is well supported in both databases such as Oracle and IBM DB2, and programming languages such as Python and Java

8. CFTC: FX Feature, Narrow Index, Strategy, High Delta • We have identified additional required features during our analysis to comply with CFTC Part 43 and Part 45 for bespoke and complex products • FX Feature: Quanto, Composite or Cross-Currency, both on Product Definition and Transaction to support CFTC and SEC Regulation • Narrow Index: We need Index Transactions tagged “Narrow” or “Broad” according to CFTC and SEC Regulation • Strategy: Regulators care about economic effects, regardless of how they are achieved, so Strategies such as Put/Call Combo are in scope • High Delta: How do we define “High” ? Do often do we report ?

9. Appendix: ISDA EDD 2011 Product Identity Tags • Black text terms are from original publication of Main Book • Red text terms are from Appendix 2.0 • Green text terms are from Appendix 2.1

10. Appendix: ISDA EDD 2011 Product Type Tags • Black text terms are from original publication of Main Book • Red text terms are from Appendix 2.0 • Green text terms are from Appendix 2.1