notionalStepSchedule/initialValue

[alexnotalex]

Good morning,

Please could you advise on he interpretation of this for IRD swaps.
Does the standards group favour “the initial notional at the start of the trade” or “the initial notional at the start of the current version of the trade”? or even more precise “the initial notional at the start of the latest confirmed version of the trade”?

We’re using FpML grammar for internal messaging with some extensions and a custom root node. Message triggers include notional steps and cashflow updates e.g. for an amortising swap 100,90,80,70,60,50; should the initialValue in version5 be 100, or 60?

Very best regards,
Alex

[roma]

Hi Alex!

Can’t say for everyone. But in our system we use rule “initial notional at the start of the trade”. I think this choose give you more global look at trade -> you have less uncertainty at trade processing.

[alexnotalex]

Thanks! I think we agree – that’s the intuitive definition and the one I’ve used before. At my current place I’m seeing it framed as the current notional (i.e. the initial value for this version of the trade), with all schedules forward-looking, so the history drops off.

Alex

[h_mcallister]

Hi Alex,

Meant to reply to your post a few days ago – looks like you already have the answers you need. Anyway here goes …

In principle, the effective date and initial notional are “historical facts” reflecting the external reality of the contract confirmed with your counterparty. From this point of view, the initial (i.e. original) notional remains the same regardless of the current notional at a given point in time.

However a trade management system may manage versioning as a linked series of trade records, each commencing at the start date of current period (as at the date of the business event which triggers creation of the version). In this case, each successive version is naturally represented with effective date and initial notional as per the “current” period – as you say, a forward looking view of the trade which avoids the problem of past cash attributed to expired periods.

Both views of the trade are valid – it depends on the purpose they are used for. For example you may need to be access the initial version of the trade (with original effective date & notional) for external confirmation of a post-trade event such as a novation.

Regardless of which approach you take, the initial notional should always be consistent with the effective date of the trade version.

[Author]

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