FpML Issues Tracker

Summary

SwapsWire have reviewed the credit default swap product definition in FpML 4-0 WD#2 and have identified the following issues which we feel need to be addressed in the next Working Draft.

Issues related to documenting trades under the 2003 and 1999 Definitions:

1. Settlement Currency. In the current FpML 4-0 WD#2 Schema the Settlement Currency can only be specified as part of trade where Cash Settlement is applicable since the element settlementCurrency only appears within the component cdsCashSettlementTerms. It does not appear within physicalSettlementTerms.

This would appear to be inconsistent with the 2003 Definitions (and 1999 Definitions) where Settlement Currency is defined in Section 6.3 in Article VI "General Terms Relating to Settlement" and in fact then only referenced within Article VIII (Terms Relating to Physical Settlement) within Section 8.9 Currency Amount. Also within the 2003 Master Confirmation Agreement the Settlement Currency is listed as part of the general Settlement Terms rather than specifically within 'Terms Relating to Physical Settlement'.

The confusion may have arisen because within Exhibit A to the 2003 Definitions (the example long form confirmation) the Settlement Currency appears within the block of terms relating to Cash Settlement.

2. Domestic Currency. The current WD#2 Schema allows more than one currency to be specified for 'Not Domestic Currency' which doesn't seem correct per the 1999 and 2003 Definitions. We would have thought the rule should be zero or one (zero is allowable since there is fallback language in the Definitions) but a maximum of one.

Issues related to documenting trades under the 2003 Definitions:

Reviewing the Asia Pacific 2003 Master Confirmation we noted a couple of defaults specific to a Transaction Type of 'Japan' that cannot currently be specified in the Schema for a long form CDS trade. These anomalies (3. and 4. below) are:

3. Credit Event Occurrence Time Zone. If the Transaction Type indicated in the Transaction Supplement is Japan "GMT" in Section 3.3 of the Credit Derivatives Definitions shall be replaced by "Tokyo time".

4. Credit Event Notice After Restructuring. If the Transaction Type indicated in the Transaction Supplement is Japan, Section 3.9 of the Credit Derivatives Definitions shall not apply.

5. 60 Business Day Cap on Settlement. Since certain markets are trading with this new language relating to the '60 Business Day Cap on Settlement' and ISDA have published the side letter on their website it would seem sensible for there to be a standard way of indicating applicability of this additional term in the Schema for a long form CDS trade.

6. Calculation Agent City. The Asia Pacific 2003 Master Confirmation includes Calculation Agent City on the Transaction Supplement. Currently in the Schema there is no way of specifying just the Calculation Agent City without also needing to specify the Calculation Agent, i.e. the calculationAgent component requires calculationAgentPartyReference in addition to businessCenter.

Issues related to documenting trades under the 1999 Definitions:

In reviewing the ability for the current WD#2 Schema to support trades documented under the 1999 Definitions weve identified what appear to be a couple of omissions in the current Schema:

7. Not Contingent Deliverable Obligation Characteristic. Under the 1999 Definitions 'Not Contingent' appears as both a possible Obligation Characteristic and a Deliverable Obligation Characteristic. Under the 2003 Definitions it is only a Deliverable Obligation Characteristic. However, in the current Schema the notContingent element is defined as being part of the "deliverableObligationCharac" substitution group only which means it is not possible to specify it as an Obligation Characteristic if one required to do so when documenting a trade under the 1999 Definitions.

8. Indirect Loan Participation Deliverable Obligation Characteristic. Under the 1999 Definitions 'Indirect Loan Participation' appears as a possible Deliverable Obligation Characteristic. The current Schema has no indirectLoanParticipation element as part of the "deliverableObligationCharac" substitution group so it's impossible to specify this characteristic if one needed to do so.

Regards Guy Gurden Product Development Manager SwapsWire