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Overview of ISDA Workshop on Trade Notification Workflow and Pilot Program

The ISDA workshop in New York on September 8, 2006, focused on the trade notification workflow for IRS and CDS. Key highlights included the identification of pilot participants and the asset classes involved, such as interest rate swaps and credit default swaps. Two workflows were established: trade notification and portfolio reconciliation. Important milestones include the planned London meeting on September 20 and the targeting of pilot program initiation by the end of 2006. Detailed asset class information and post-trade flow scenarios were discussed to ensure clarity among participants.

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Overview of ISDA Workshop on Trade Notification Workflow and Pilot Program

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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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