FpML Issues Tracker

659: Equity Variance/Dividend Swap Backwards Incompatibility – 4.3 REC

March 25, 2008

closed

Block

Always

Equity Derivatives

hpegeron

apparry

Summary

There is currently what appears to be two rather critical mistakes with the currently published FpML 4.3 Recommendation. Variance Swaps and Dividend Swaps are currently not backwards compatible from the previous published versions of FpML.

In our attempt to implement the 4.3 Recomendation for all Equity products, DTCC ran into 3 major issues with the EQD asset schemas. Our implementation of Equity Swaps and Options is currently compatible with the Recommendation but Variance and Dividend Swaps seem to have changed significantly (presumably as part of the leg remodeling).

Variance Swaps Issue #1) fxFeature has been removed from the equityAmount.variance structure. The fxFeature element is used to support the Reference Currency and Primary/Secondary Rate Source information on certain MCAs. This was removed at some point during the LCWD but is still required for these MCAs.

Issue #2) expiringLevel has been removed from the equityAmount.variance structure. The expiringLevel is applicable to an Index Variance Swap done under the "ISDA2007VarianceSwapEuropean", "ISDA2004VarianceSwapAmericasInterdealer", "ISDA2007VarianceSwapAmericas", and "ISDA2007VarianceSwapAsiaExcludingJapan" MCA. It should not have been removed in the 4.3 Recommendation.

Dividend Swaps Issue #3) settlementType has been added as a mandatory element to the dividendLeg structure. The structure previously did not include this element and only consisted of a settlementCurrency, but there is now a mandatory settlementType in the dividendLeg which is not present on the Equity MCAs.

All 3 of these issues are currently preventing migration to the FpML 4.3 Recommendation and do not appear to have any business justification for being added/removed. We're hoping these were simply erroneously changed over the course of 4.3 and can be corrected as soon as possible as errata.

Regards, Henri Pegeron --------------------------------------------- The Depository Trust & Clearing Corporation DTCC Deriv/SERV : Business Analysis & Design 55 Water Street - New York, NY 10041 Phone: + 1 (212) 855 1682 Fax: + 1 (212) 855 1020

Notes:

  • matthewdr

    04/03/08 1:58 pm

    Discussed at AWG and reassigned to EQDWG

  • iyermakova

    04/04/08 1:48 pm

  • iyermakova

    04/10/08 4:16 pm

    We have republished the Recommendation for FpML version 4.3 (now build 11). The expiringLevel and fxFeature elements were added to DeprecatedVariance complex Type.
    http://www.fpml.org/spec/fpml-4-3-11-rec-1/

  • mgratacos

    04/22/08 8:15 am

    EQDWG call April 18, 2008:
    […]
    5. Make element settlementType optional within DividendSwap

  • iyermakova

    05/09/08 7:33 pm

    We have republished the Recommendation for FpML version 4.3 (now build 12).
    In view of the fact that the “settlement type” is not present on the Equity MCAs, the element settlementType within OptionSettlement.model was made optional.
    Note: OptionSettlement.model is used by Variance, Correlation and Dividend Swaps an Options, as well as by Bond and creditDefaultSwap Options.

    http://www.fpml.org/spec/fpml-4-3-12-rec-1/

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