Bermuda Callable Interest Rate Swap

[andres_pj]

Hello. Do you have any Bermuda Callable IRS FPML example? We are using the node “cancelableProvision” node that is included in the “swap” content model. But we have some doubts in the node “multipleExercise”, because we don’t know how to apply the concept of minimumNumberOfOptions and maximumNumberOfOptions in an Callable IRS product. Does it make sense? http://www.fpml.org/spec/fpml-5-3-2-wd-2/html/confirmation/schemaDocumentation/schemas/fpml-ird-5-3_xsd/complexTypes/Swap/cancelableProvision.html Thanks and regards.

[h_mcallister]

Hi Andres, * You are correct in using the cancelableProvision component to represent the features of a callable swap * Please note that multipleExercise is optional in the schema – so you would only produce this element where the option permits partial exercise i.e. a portion of the notional may be exercised, potentially on multiple occasions (not usually the case for a callable swap). * The BermudaExercise and MultipleExercise complex types were originally designed to be used in multiple product contexts (not only Interest Rate). Note that the elements minimum- and maximum-NumberOfOptions exist in *choice* groups with minimum- and maximum-NotionalAmount respectively. Under an InterestRate product you would produce the -NotionalAmount element, so the -NumberOfOptions element becomes irrelevant.

[andres_pj]

Hi H_mcallister. Thanks for your quick answer. Yes we are setting the multipleExercise because we have partial exercise callable swaps. Then, based in your feedback about the -NumberOfOptions field, we won’t take -numberOfOptions nodes into account. 1. For the minimumNotionalAmount and maximunNotionalAmount I have one doubt. If I have an amortized swap (where notional decreases along the cashflows) and we have this callable bermudan flavor. What should be set in the -minimumNotionalAmount and -maximumNotionalAmount? In conclusion, in our example the amount that can be exercised can change along the different cashflows, then What should be set in this case? and taking into consideration that the -multipleExercise node just can be set once per contract. In my opinion it looks like the FPML standard just support -minimumNotionalAmount and -maximumNotionalAmount as constant values for the full contract. Am I wrong? 2. Based on the first point, How can we represent in the FPML standard that requirement? Thankd and regards.

[andres_pj]

Hi. Could someone please help me on my last two questions. Thanks

[h_mcallister]

Hi Andres, In answer to your questions: Q1.1 What should be set in the minimumNotionalAmount and maximumNotionalAmount? A: The amount specified as the minimum exercise amount in the contract terms. Where multiple partial exercise is available, it is common practice to specify a minimum exercise amount – usually small in relation to the exercisable notional amount (e.g. 100K against a notional of 1M), and certainly no greater than any residual notional in the last phase of an amortising schedule. If you don’t have this information, or a minimum exercise amount is not specified in the contract terms, then I suggest you produce minimumNotionalAmount = 0. Q1.2 It looks like the FPML standard just supports minimumNotionalAmount and maximumNotionalAmount as constant values for the full contract. A: I’m not aware of any case where minimum/maximum exercise amount varies over the term of the contract. Q2: How can we represent that requirement in the FPML standard? A: As per 1.2 above, I’m not sure that the case arises. Do you have an example of a trade where the confirmation terms specify a *varying* minimum exercise amount? Harry McAllister irdchair@fpml.org

[andres_pj]

Hi Harry, Thanks for the reply. We have a trade where it says the option holder has the option of canceling up to 10% of the remaining notional. And the trade is an amortizing swap. So the 10% on each of the exercise dates are different. Since its up to 10% we can set the minimumNotionalAmount to 0. But the maximumNotionalAmount has to be different for each period. How would we handle such a case in the FPML standard? Thanks, Andres

[h_mcallister]

Hi Andres, Thanks, now I understand … Unfortunately, this particular case is not supported. This could be implemented readily, e.g. by adding a choice of maximumFractionOfNotional (decimal value between 0 and 1) – but I appreciate that doesn’t help you right now. * What is the context in which you are producing this message (e.g. STP between internal systems)? * What version of FpML are you using (looks like 5-3, from your original post)? Best regards, Harry

[ludpilla]

Harry, Andres is off for a few days, so I will reply. We’re implementing GTR reporting to DTCC The current FpML version they support is indeed 5-3 Thank you Ludovic

[h_mcallister]

Hi Ludovic, Andres, That is useful information: multiple exercise properties for Cancelable Provision, including minimum/maximum exercise amounts, do not appear to be supported by the GTR, according to the DTCC/GTR Rates Upload Spreadsheet v27.2 (“Confirmation” tab, Category = “Cancelable Provision”). This suggests that these properties do not require to be provided when reporting cancelable (callable) swaps to the GTR – although *please note* that the equivalent properties *are* supported for Confirmation reporting of Swaptions. Best regards, Harry

[dremlyuga]

Hi, have you found such example? I need such one too.

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